Homes more expensive: RBC

By Staff | August 27, 2012 | Last updated on August 27, 2012
2 min read

Housing has become more expensive for the second quarter in a row.

So says the latest Housing Trends and Affordability Report, released today by RBC Economics Research.

RBC notes that exceptionally low interest rates have been the most important factor in keeping prices from reaching dangerous levels. If interest rates rise, homes may become even less affordable.

Read: Demographics won’t hurt the housing market

“Assuming the European crisis remains contained and fiscal challenges in the U.S. are addressed, we expect the Bank of Canada to start normalizing interest rates early next year. This could cause further deterioration in affordability,” says Craig Wright, senior vice-president and chief economist, RBC.

“We think that the central bank will proceed gradually with rate increases and that household income will continue to grow. Both of these factors should lessen the negative impact on the housing market.”

Read: Fixed residential mortgage rates increasing

The bank notes the national affordability average is distorted by extremely high home prices, relative to incomes, in Vancouver.

As for the future, “Going forward, we anticipate that the latest mortgage insurance rule changes and prospects for further erosion in affordability will restrain homebuyer demand in Canada,” says Craig.

Read: Housing market cools

The RBC housing affordability measure captures the proportion of pre-tax household income that would be needed to service the costs of owning a specified category of home at going market values.

During the second quarter of 2012, measures at the national level edged higher for detached bungalows and two-storey homes by 0.2 and 0.6 percentage points to 43.4% and 49.4%, respectively (the higher the percentage, the less affordable the property).

The measure for condominium apartments was unchanged at 28.8%.

Read the full report here.

Advisor.ca staff

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.