Canadian home ownership was a bit more affordable in the third quarter thanks, in part, to softer home prices and slightly higher household income, and even though interest rate are slated to go up at some point there are some factors that might lessen the pain.
Royal Bank of Canada, the country's biggest bank, measures affordability as the percentage of monthly pre-tax income for a household needed to cover the costs of owning a home. Its measure showed declines in the third quarter, according to the RBC Economics report, meaning an improvement in affordability.
The detached bungalow benchmark edged down 1.0 percentage point to 42.0 per cent, by 1.2 percentage points to 47.8 per cent for a two-storey home and by 0.6 percentage points to 28.0 per cent for a condominium.
By RBC's measure, the higher the reading, the more difficult it is to afford a home at market values.
The bank said Ottawa's move to tighten mortgage rules has helped calm the country's frothy real estate market in the third quarter, but expects those restraining effects to ease by the end of the year, and sees stable housing resale activity in 2013.
Clearly, a big threat to affordability is rising interest rates. RBC sees a hike in the third quarter of next year, assuming that the European crisis remains contained and that the U.S. fiscal challenges are addressed.
But some factors may soften the impact of rising rates. Because the bank expects the Bank of Canada to nudge rates up slowly, and also expects that household income will continue to grow, both considerations will work "to lessen the risk of marked erosion in affordability," RBC notes.
Affordability by region
Vancouver remains the least affordable. The benchmark for detached bungalows there fell 5.8 percentage points from the previous quarter to 83.2 per cent. Toronto was down by 0.7 percentage points to 52.4 per cent, while Ottawa slipped 0.4 percentage point to 38.7 per cent.
Calgary edged 0.7 percentage point lower to 38.3 per cent, while Edmonton was down 0.6 percentage point to 31.1 per cent, the report showed.