Homeownership costs ease

Clients saving for a new home purchase can breathe a sigh of relief—the cost of ownership eased for the second quarter in a row, according to RBC Economics’ Housing Trends and Affordability report.

During the last quarter of 2010, the national reading of the RBC Housing Affordability Measure declined between 0.4% and 0.8% across the housing types tracked by RBC.

Part of the decline came from lower interest rates on the most popular 5-year term mortgages. Stagnating house values also helped keep homeownership costs in check.

“Some of the stress that had been building in the housing market between 2009 and the first half of 2010 has been relieved, but tensions persist overall and the recent improvement in affordability is likely to be short-lived,” said Robert Hogue, senior economist, RBC.

Hogue says the Bank of Canada will likely start to raise its trendsetting interest rates in the spring, and mortgage costs will rise over the coming two years.

“That said, we don’t expect this to derail the housing market because of rising household income and job creation from the sustained economic recovery.”

The Housing Affordability Measure declined the most for detached bungalows, with costs easing 0.8%, while detached two-storey homes and condominiums both eased 0.4%.

On a province-by-province basis, only Ontario and Quebec saw an erosion in affordability for two-storey homes, while Quebec and the Atlantic region saw affordability decline for condominiums.

“We expect affordability measures will rise gradually in the next three years or so while monetary policy is readjusted, but will land softly thereafter once interest rates stabilize at higher levels,” Hogue said. “This pattern would be consistent with moderate yet sustained stress on Canada’s housing market. Overall, the era of rapid home price appreciation of the past 10 years has likely run its course and we believe that Canada has entered a period of very modest increases.”

The full report is available on the RBC website.