Variable rates are still really good.
It’s that time again. When Mark Carney and his cohorts ascend Mount Olympus once more for the latest round of talks to decide the immediate future for Canadian mortgage holders.
The prevailing feeling however is that little will result from this month’s scheming and plotting. Another meeting will pass with rates unchanged and the variable rate mortgage holders can rest easily until July 19th signals the next round of talks. While some speculators – who haven’t been paying enough attention to our blog – earlier in the year cited this meeting as the one to kick off a series of interest rate rises, it now appears those speculators were somewhat premature in their estimations. Recent developments have meant it is now highly unlikely we will see a rate increase tomorrow, Tuesday, May 31, 2011.
Economic growth for the first quarter in the US, Canada’s primary trading partner, came in at a highly disappointing 1.8% with consumer spending slowing. And while Canada’s strong dollar has seen investment increase and manufacturing experience a long overdue rebound, these are still highly uncertain times for the Canadian economy. As expressed by Governor Mark Carney earlier this month, fears persist that rising commodity prices, combined with an inflated currency could impede Canada’s ability to increase demand in the US. The commodity boom is no longer serving Canada in the way it had previously during China’s rapid expansion. These concerns combined with the ever worsening European debt crisis and the impending impact of fiscal austerity in the US driven by irrational desires to cut the budget mean a rate hike tomorrow is highly unlikely.
While we feel that interest rate rises are coming before the end of the year we still feel the variable rate offers the greatest value for money. However we always advise our clients that if they feel ill-suited to the uncertainty of a variable rate, they should opt for a fixed. And the good news is that being adverse to risk has rarely been so well rewarded, with fixed rates plummeting in recent weeks. Fixed rates, as we predicted they would, have fallen repeatedly and there has never been a better time to opt for fixed. If you have any questions about anything you’ve read here or would like to hear how the impending rise in prime may affect you, please feel free to contact us at403-681-4376 for sound, unbiased mortgage advice.
ALBERTA’S HOUSING AFFORDABILITY REMAINS STABLE AND ATTRACTIVE: RBC ECONOMICS
Calgary market transitioning into a more vigorous phase.
This is great news as affordability is super important. Note in Vancouver it takes about 3/4 of a person’s income to pay for their home. Yikes! Have a look at some other good reports here.
TORONTO, May 20 /CNW/ – Unlike most other major centres across Canada, housing affordability in Alberta remained stable in the first quarter of 2011, according to the latest Housing Trends and Affordability report issued by RBC Economics Research.
Until the fall of 2010, abundant availability of homes for sale in the face of sluggish demand kept housing prices firmly under control. Resulting stable or slightly declining property values contributed to a substantial improvement in affordability in Alberta last year.
“The Alberta market continued to be stuck in low gear in the first quarter of 2011. Sales of existing homes and construction of new housing units showed very modest increases,” said Robert Hogue, senior economist, RBC. “While market conditions have become more balanced in recent months, owning a home doesn’t seem to be getting more expensive in the provincial market at this stage. Affordability levels are still looking quite attractive.”
RBC’s housing affordability measures for Alberta, which capture the province’s proportion of pre-tax household income needed to service the costs of owning a home, remained relatively unchanged and below their long-term averages in the first quarter of 2011. The measure for the benchmark detached bungalow in the province moved up to 31.3 per cent (an increase of 0.4 of a percentage point from the previous quarter), the standard condominium stayed flat at 20.2 per cent and the standard two-storey home fell to 34.2 per cent (down by 0.2 of a percentage point).
RBC’s report notes that there are signs that the Calgary housing market is finally overcoming its protracted slump. Home resales in the area grew for the second consecutive period in the first quarter, the most growth since the middle of 2009, helping to remove market slack and setting a healthier balance between demand and supply.
“Calgary home prices have yet to break out of their listless trends, but they rose at their fastest rate in more than a year in the first quarter, with detached bungalows leading the way,” said Hogue. “Firmer market conditions and higher prices had only limited impact on Calgary’s affordability, which remains among the most attractive of Canada’s major cities.”
The majority of Canadian markets experienced weakened affordability in the first quarter of 2011. Most notable was the sizeable deterioration in British Columbia. More specifically, Vancouver saw significant gains in property values, which drove the already elevated cost of homeownership even higher. Quebec’s homebuyers also faced noticeable rises in ownership costs, while those in Atlantic Canada saw their affordability advantage somewhat diminish. The picture remained mixed in other areas of the country, with Ontario, Alberta and Saskatchewan experiencing ups and downs in ownership costs, depending on the housing type.
“Despite the latest erosion in affordability, provincial levels generally continue to stand near their long-term averages, suggesting that owning a home remains affordable or, at worst, slightly unaffordable across Canada – with Vancouver being a notable exception,” said Hogue.
RBC’s housing affordability measure for a detached bungalow in Canada’s largest cities is as follows: Vancouver 72.1 per cent (up 3.4 percentage points from the last quarter), Toronto 47.5 per cent (up 0.8 of a percentage point), Montreal 43.1 per cent (up 2.0 percentage points), Ottawa 39.0 per cent (up 0.4 of a percentage point), Calgary 35.9 per cent (up 0.9 of a percentage point) and Edmonton 31.5 per cent (up 0.5 of a percentage point).
The RBC housing affordability measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market in Canada. Alternative housing types are also presented including a standard two-storey home and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.
Coming soon: higher interest rates
- refinance – or re-do your mortgage – and get today’s rates for another 5 years,
- roll in some higher interest payments – like LOC -Line of Credit or credit cards or,
- buy your first home before rates go up or,
- finally get that summer/ ski vacation cabin.
Call for a free 5-minute mortgage check-up while there is still time. (That may be 2 or 3 weeks from now as the bond market will smell this coming inflation pretty quickly.)
Let’s start with a little tutorial (no, please keep reading, it will be brief) and then we’ll talk about why this week’s economic data changes everything, more or less.
The Bank of Canada sets the benchmark overnight rate (the rate at which banks lend to each other). That in turn affects market interest rates on everything from mortgages through to business loans. At present, the overnight rate is at 1 percent, following three hikes of 25 basis points each last year.
The tutorial is on the ‘output gap’ which is one of the major tools that the Bank of Canada looks at to set monetary policy. Here goes.
The ‘output gap’ refers to the difference between the actual output of the economy and the potential output. Potential output basically refers to the maximum that could be produced if all inputs (like the labour force, technology, capital, factory space and all that) were used to the fullest extent that they can be without triggering inflation. That last little bit is key: when the bank says ‘potential’ they don’t mean full potential, they mean ‘potential without forcing prices higher’. It is a similar concept to what economists mean when they say ‘full employment’. In that case it does not mean everyone working, it means everyone working that can be working without wages being forced higher.
The Bank of Canada monitors the output gap as best they can, first by estimating what potential output is in any period of time, then estimating how close to potential the economy looks to be. A positive output gap means the economy is operating above potential, and that inflation is a risk. A negative gap means there is excess supply (for example, too many unemployed workers) and that inflation is not a risk, or at the extreme, that deflation is possible.
The Bank of Canada adjusts policy to try to get keep things in balance and the output gap closed – sort of a ‘not too hot, not too cold’ thing. Based on their most recent calculations, their latest estimate (which was contained in last week’s Monetary Policy Review) was that the output gap would close by the middle of 2012.
Everybody still with me? Good. Here’s the thing: as well as looking at the output gap itself, the Bank also looks at a bunch of economic indicators to see how close to capacity the Canadian economy is running. Things like industrial production, the unemployment rate, unfilled manufacturing orders – and inflation.
That last one is probably the most important, and it is the one that seems to be running most out of sync with where the Bank of Canada thought it would be. In the Monetary Policy Report, the Bank said that the overall inflation rate (which they target to be 1 to 3 percent) would peak at 3 percent in the second quarter. This week, we got the March inflation report, and we find out that the inflation rate was 3.3 percent as of March – which is decisively in the first quarter. Ouch.
So what does this mean? It means something has to change to keep the Canadian economy from overheating. That something is likely to be Canadian interest rates, and when I say ‘change’ I mean ‘go higher’.
If rates do not go higher, then the output gap is at risk of going into positive territory, which means inflation takes off even more. No way is the Bank of Canada going to let that happen.
There are other things to take into account too – the spiky Canadian dollar is an important one – but it does not take away from the big picture.
Big picture? A rate hike by July, and maybe more to come after that. And yes, watch the loonie soar in the meantime.
Occupied downtown Calgary office space at 2008 level
This is great news for the housing market as all those workers are moving into Calgary and will need places to live. There are details of the increasing need for housing in my free reports and most of these people will need a Calgary mortgage broker.
Large blocks of space short in supply
CALGARY — Occupied office space in downtown Calgary has surpassed the level reached during the height of the real estate market in the second quarter of 2008.
A report by Colliers International says that occupied space has reached 33.7 million square feet in the first quarter of this year.
The overall vacancy rate declined one percentage point to 10.92 per cent which equated to about 393,000 square feet of positive absorption in the first three months of 2011.
“Much like in the latter half of 2010, oilsands companies continued to grow, with numerous new projects on the horizon creating additional office space requirements,” said the report. “Most of the activity can be attributed to the strong oil prices and resultant higher levels of activity in the sector.”
The recently-completed Eighth Avenue Place office tower absorbed 50,000 square feet last quarter. It is currently 88 per cent leased.
Development of the 49-storey, 1.1 million-square-foot EAP began totally on speculation with no leasing deals in place.
“With oil trading above $100 a barrel, leasing activity in the Calgary downtown office market is expected to remain strong throughout 2011,” said Colliers. “As more companies take on additional projects, the highly active oil sector will continue to recapture most of the jobs lost during the recessionary period.
“As employment increases, vacancy numbers will continue to decline. Good quality space is leasing quickly in the current market, as shown by the strong absorption numbers for the upper classes of office buildings … Large contiguous blocks of vacancy in all classes of buildings have become short in supply.”
Meanwhile, the Calgary Board of Education has officially put the downtown Education Centre building up for sale. The building at 515 Macleod Trail S.E. has been put for sale by public tender with a minimum bid price of $40 million.
The five-storey building is close to 91,000 square feet on 1.08 hectares of land.
“The final bid and sale price will ultimately be determined by prevailing market conditions,” said the CBE.
The board said the Armengol sculptures, commonly known as the Family of Man statues, are not within the scope of the sale. The future of the sculptures will be determined by the City of Calgary, the sculpture’s owners.
The offer for sale by tender will expire May 4.
The CBE said the building will be vacant by June this year as staff moves into the new Education Centre at 1221 8th St. S.W.
© Copyright (c) The Calgary Herald
Canada in middle of growth spurt, to lead G7 in first half of 2011: OECD
Canada is like the average student in the poor class, not the brilliant student in an average class. But, as Charlie Sheen says, “winning!”
By The Associated Press
OTTAWA – A leading international think-tank says Canada will lead its peers in the G7 in economic growth during the first half of this year. The Organization for Economic Co-operation and Development says the outlook for economic growth has brightened for all G7 countries, with the exception of Japan .
But the improvement has been most marked in Canada and to a lesser extent the United States.
“The outlook for growth today looks significantly better than it looked a few months back,” OECD chief economist Pier Carlo Padoan said in a statement.
“Growth perspectives are higher all across the OECD area, and the recovery is becoming self-sustained, which means there will be less need for fiscal or monetary policy support.”
Canada is now expected to grow by 5.2 per cent in the first quarter of 2011, and 3.8 per cent in the current second quarter.
Much of that growth has come from the resources sector in Western Canada and continued strength in the housing market in most parts of the country.
Germany is the next strongest economy, with growth rates of 3.7 and 2.3 per cent in the two quarters.
Overall, the Paris-based organization says the G7 economies excluding Japan are set to grow at an annual rate of about three per cent in the first half of 2011, well above the organization’s previous forecast.
The growth estimates given by the OECD are the middle of a range, meaning the rates could be slightly lower or higher.
The new forecasts exclude Japan because of the uncertainty over the full cost of damage from last month’s earthquake, tsunami and nuclear disaster.
The Canadian economy began the year with an impressive 0.5 per cent expansion in January that has set the stage for the strongest quarter in a year, according to Statistics Canada.
The performance was in line with market projections, but still was a mild surprise because many economists had worried of a possible payback after December’s equally robust 0.5 per cent gain in gross domestic product.
The strong back-to-back months put the economy on pace to grow by as much as 4.5 per cent in the first three months of the year, analysts have said. That’s two whole points more than the Bank of Canada’s now-dated estimate. At that growth rate, the pace of job creation should be high enough to continue pushing down the national unemployment rate, currently 7.8 per cent.
In the last year, the Canadian economy has created 322,000 jobs and has rebounded nicely from the 2008-2009 recession that battered the country’s manufacturing sector.
In some sectors of the economy, price pressures have been building, raising the prospect of higher interest rates down the road to fight inflationary pressures.
The next scheduled announcement on interest rates from the Bank of Canada is April 12, although the central bank isn’t expected to change its policy rate at that time from the current one per cent. Another announcement is scheduled for May 31, after the federal election.
Most economists believe Bank of Canada governor Mark Carney will leave a hike on the sidelines until July http://ca.finance.yahoo.com/news/Canada-middle-growth-spurt-capress-340380811.html?x=0
Alberta’s raw materials will fuel small real estate boom
Comment – this is what caused the inital boom – high inter-province relocations to Calgary. Why? Do you know that Ft. Mac has the world’s largest oil reserves that are not government owned!
Kevin Usselman
The world wants what Alberta has an abundance of; namely energy, food, fertilizer and lumber.
Cutting Edge Research President Don Campbell has been tracking Canadian real estate for 19 years and he says the province is in a good position to cash in.
Campbell says vacancy rates are again on the decline while job creation numbers are on the rise.
He says Alberta’s economy is going to act like a magnet in the next 18 to 24 months and people need places to live.
Subsequently, Campbell has a rather bullish economic and housing forecast for the province and for Calgary in particular.
He doesn’t believe Calgarians are going to see another housing boom like the one experienced back in 2006-2007, but thinks sales and prices could rise anywhere from seven to 12 per cent by 2013.
Campbell is also glad to see the city moving forward with major transportation projects like the west leg of the LRT, although he’s disappointed more efforts aren’t being made to address the secondary suite issue.
Calgary ranks third on global prosperity score card
Calgary ranks third on global prosperity score card: Toronto Board of Trade
BY KIM GUTTORMSON, CALGARY HERALD
Calgary is back near the top of a score card that ranks prosperity in a number of cities around the world, besting all other Canadian metros on the list.
Strong population growth, a young workforce, disposable income, affordable housing and clean air helped boost the city to the number three spot on the list behind Paris and San Francisco.
That’s up from last year’s fifth place ranking, but below its first place finish in 2009, the first time the Toronto Board of Trade compiled results, using information from the Conference Board of Canada — including commute time, income equality, gross domestic product and productivity — to compare 24 major cities.
However, Calgary did score low in some key areas, including transportation.
“I think it speaks to Calgary’s more dynamic economy, more dynamic than we had in the ‘80s when it took us years to crawl out of the recession,” Todd Hirsch, senior economist at ATB Financial, said of the city’s post-recession recovery. “What you’d really hate is to be extremely high in some (indicators) and at the bottom on others.
“You’d rather be really good on a number of indicators and get an overall ranking quite high, like Calgary got.”
The Toronto board of Trade said “Calgary’s success comes from a combination of solid fundamentals in both (economy and labour attractiveness), not just from a robust economy. With the fastest population growth of all metros, Calgary proved that it was an attractive place for people seeking work.
“Calgary’s housing affordability and clean air provide further evidence of its livability.”
Elsbeth Mehrer, director of research, workforce and strategy for Calgary Economic Development, says the city’s ranking shows it should be a choice destination for both companies and people.
“To be able to put the city in the context of major global cities like Paris and San Francisco, that’s an important frame around our positioning,” she said. “I think that helps to elevate the conversation to a different level.
“If you’re comparing yourselves with communities of this stature, now it’s a very different conversation in terms of the types of target companies you’re trying to attract, the types of investment.”
On the score card Calgary ranked third overall, and third for being attractive to workers (behind Paris and London).
The ability to attract labour is important, said Chamber of Commerce chief economist Ben Brunnen, because “the labour shortage, labour retention issue is starting to emerge again. Positioning Calgary as a destination for young talent is a fundamental first step for long-term prosperity.”
Calgary placed sixth if only the economy was looked at (behind San Francisco, Boston, Seattle, Dallas and New York).
The Toronto Board of Trade wrote that Calgary overcame “near-bottom rankings on venture capital investment, market size, and IPOs, with first or second-place results on income growth, unemployment rate, residential building permit growth and GDP growth” to get to that sixth spot.
Calgary’s average office rents also put them in the top half of the rankings, in that they’re cheaper than more than 50 per cent of the list.
In the first three months of 2011, according to CB Richard Ellis, Calgary’s office vacancy fell to 12 per cent from 15 per cent compared to the same period a year before. Regional managing director for Alberta Greg Kwong said in a release that given the amount of office space coming onto the Calgary market, the drop is “amazing. This is a testament to how resilient Calgary’s office market has become.”
However, for all the good news, the city rated an overall 13th place in the transportation category.
That factored in an average commute time of 67 minutes, longer than Los Angeles, Chicago and Berlin, but better than Toronto’s 80 minutes, and a score in the bottom half when public transit ridership was evaluated.
“It points out some of the warts, too,” Hirsch said of the score card. “It’s good to be made aware of this is where we rank in global cities when it comes to commute times. A 60-minute commute time is not normal, this not just being part of a big city.
“This is a problem. Who knows where we would be if we could solve some of those transportation problems.”
Calgary also ranked lower in areas that included productivity and venture capital, which Mehrer said are on-going issues the city’s business community knows need work.
“It reaffirms what we know needs to be a focus,” she said.
© Copyright (c) The Calgary Herald
Prime to be at 4% by 2012
BoC rate to reach two per cent by year end: RBC
By | 11/03/2011 2:00:00 PM | 0 comments
As part of its economic outlook for 2011, RBC projects that the Bank of Canada overnight rate will rise from one per cent to two per cent by year-end.
The gradual pace of rate increases combined with anchored inflation expectations will result in less upward pressure on long-term interest rates, added the Economic Outlook released by RBC Economics.
On the back of solid net exports in the final quarter of 2010, Canada’s economy finished the year on a high note recording stronger than expected gains. The biggest support for the economy came from net exports, which added a full 4.5 percentage points to the quarterly growth rate. Continued consumer spending also played a vital role in driving overall GDP, marking the fastest increase in spending since late 2007.
RBC expects real GDP to increase at 3.2 per cent in 2011, as U.S. demand for Canadian exports increases. Growth in 2012 is forecast to rise by 3.1 per cent.
The report also stated labour market conditions will remain firm in 2011and disposable income is expected to post a 4.1 per cent gain that will provide continued support to consumer spending.
“Consumers’ earlier confidence in taking on increasing amounts of debt was based on a combination of lower interest rates, a strengthening labour market and a 4.6 per cent rise in disposable income,” explained Craig Wright, senior vice-president and chief economist, RBC Wright. “An expected slowing in the housing market, rising interest rates and tightening mortgage lending standards all add up to a levelling out in consumer debt relative to income.”
At the provincial level, RBC forecasts Saskatchewan will lead the country in growth this year. Alberta is expected to return to a top three placing, closely trailing growth in Newfoundland and Labrador. Ontario and Manitoba will hover close to the national average while both Quebec and British Columbia will fall slightly below. Nova Scotia, New Brunswick and Prince Edward Island are still projected to lag behind at the lower end of the scale for 2011.
ALBERTA HOUSING MARKET MOST AFFORDABLE IN CANADA: RBC ECONOMICS
TORONTO, Feb. 24 /CNW/ – Alberta’s housing market officially became the most affordable in Canada in the fourth quarter of 2010, according to the latest Housing Trends and Affordability report released today by RBC.
Thanks to lower mortgage rates and further softening in home prices, RBC’s Affordability Measures for Alberta fell yet again in the fourth quarter, by 1.0 to 2.4 percentage points, extending their long strings of declines since late 2007.
“Alberta saw a notable downswing in demand for housing last spring and early summer, giving buyers the upper hand and pushing prices down,” said Robert Hogue, senior economist, RBC. “Alberta’s reign as the most affordable housing market may be short lived, however. Demand has shown more vigour in recent months, alongside a provincial economy that is gaining more traction, and Alberta’s market has become better balanced. We expect that this will stem price declines this year and erase a potential offset to the negative effect of a projected rise in interest rates on affordability.”
The RBC Housing Affordability Measures for Alberta, which capture the province’s proportion of pre-tax household income needed to service the costs of owning a home, eased across all housing categories in the fourth quarter. The measure for the benchmark detached bungalow moved down to 30.9 per cent (a drop of 2.4 percentage points from the previous quarter), the standard condominium to 20.3 per cent (down 1.0 percentage points) and the standard two-storey home to 34.4 per cent (down 2.2 percentage points).
The RBC report notes that gradual and steady improvements in Calgary’s housing demand have recently started to bolster market conditions as home resales increased appreciably since June which helped trim down the slack that kept buyers in the driver’s seat.
A return to more balanced market conditions in Calgary, however, did not succeed in reversing the tide in the fourth quarter of 2010 as home prices continued to weaken for the most part in the fourth quarter. Nonetheless, this contributed to further material improvement in affordability. The RBC Measures for Calgary again fell the most among Canada’s largest urban markets, declining by 0.9 to 3.1 percentage points.
“Affordability in the Calgary area is now the best in almost six years and this attractive level of affordability will support further increases in demand as the local economy picks up steam in the year ahead,” added Hogue.
Elsewhere in the country, a majority of provinces saw improvements in affordability in the fourth quarter. Only the standard two-storey benchmark became less affordable in Ontario and Quebec, as did the standard condominium apartment in Quebec and the Atlantic region.
The RBC Housing Affordability Measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market in Canada. Alternative housing types are also presented including a standard two-storey home and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.
CANADIAN HOMEOWNERSHIP COSTS EASE FOR SECOND CONSECUTIVE QUARTER: RBC ECONOMICS
This is great news.
TORONTO, Feb. 24 /CNW/ – Canada’s housing affordability continued to improve in the fourth quarter of 2010, thanks in part to slight decreases in five-year fixed mortgage rates and minimal home price appreciation across the country, according to the latest Housing Trends and Affordability report released today by RBC Economics Research.
“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. “We expect that the Bank of Canada will resume its rate hike campaign this spring and with borrowing costs set to climb further in the next two years, housing affordability will erode across the country. 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 RBC Housing Affordability Measure captures the proportion of pre-tax household income needed to service the costs of owning a specified category of home. During the fourth quarter of 2010, measures at the national level fell between 0.4 and 0.8 percentage points across the housing types tracked by RBC (a decrease represents an improvement in affordability).
The detached bungalow benchmark measure eased by 0.8 of a percentage point to 39.9 per cent, the standard condominium measure declined by 0.4 of a percentage point to 27.6 per cent and the standard two-storey home decreased 0.4 percentage points to 46.0 per cent.
“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,” added Hogue. “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.”
A majority of provinces saw improvements in affordability in the fourth quarter, most notably in Alberta where falling home prices once again contributed to lower the bar for affording a home. Only the standard two-storey benchmark became less affordable in Ontario and Quebec, as did the standard condominium apartment in Quebec and the Atlantic region.
RBC’s Housing Affordability Measure for a detached bungalow in Canada’s largest cities is as follows: Vancouver 68.7 per cent (down 0.4 percentage points from the last quarter), Toronto 46.8 per cent (down 0.5 percentage points), Montreal 41.3 per cent (down 0.4 percentage points), Ottawa 38.7 per cent (up 0.5 percentage points), Calgary 34.9 per cent (down 3.1 percentage points) and Edmonton 31.0 per cent (down 2.4 percentage points).
The RBC Housing Affordability Measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market in Canada. Alternative housing types are also presented including a standard two-storey home and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.
Highlights from across Canada:
- British Columbia: Buying a home in B.C. became slightly more affordable in the fourth quarter of 2010, due primarily to a small drop in mortgage rates. After experiencing some declines in the previous quarter, home prices rose modestly for most housing categories; condominium apartments bucked the trend, however, and depreciated slightly. Prices were supported by a tightening in market conditions with home resales picking up smartly following substantial cooling in the spring and summer that saw sellers lose their edge in setting property values. Demand and supply in the province are judged to be quite balanced at this point. RBC’s Affordability Measures fell between 0.8 and 1.0 percentage points in the fourth quarter which came on the heels of much more substantial drops (1.7 to 4.8 percentage points) in the third quarter. Notwithstanding these declines, affordability remains poor and will weigh on housing demand going forward.
- Alberta: Alberta officially became the most affordable provincial market in the country in the fourth quarter, according to the RBC Measures which fell once again by 1.0 to 2.4 percentage points, extending their declines since late-2007. In addition to the lower mortgage rates, the further depreciation of home prices contributed to lowering homeownership costs. Property values were negatively affected by a substantial downswing in demand in the spring and early summer, which put buyers in the drivers’ seat. The significant improvement in affordability is near the end of its line, however, as demand has shown more vigour in recent months – alongside a provincial economy that is gaining more traction – and the market has become better balanced. RBC expects that this will stem price declines this year, thereby removing a potential offset to the negative effect of projected rise in interest rates on affordability.