Housing Affordability Slips

The costs of owning a home increased in most major cities across Canada after two consecutive quarters of improvement. According to the RBC Housing Trends and Affordability Report, Canada's housing affordability deteriorated slightly as homebuyer demand pushed home prices higher in the first quarter, driving the cost of owning a home modestly upwards. 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. A rise in the measure represents deterioration in affordability. RBC's housing affordability measure for the benchmark detached bungalow was up 3.1 percentage points in Vancouver to 88.9 per cent, up 1.2 percentage points in Toronto to 53.4 per, up 0.9 percentage points in Ottawa to 41.8 per cent and up 1.2 percentage points in Montreal to 41.4 per cent. Calgary (36.7 per cent) remained unchanged, while Edmonton saw a drop of 0.4 percentage points to 32.4 per cent "It became a little tougher on household budgets to carry the costs of owning a home at market prices at the start of this year," said Craig Wright, senior vice-president and chief economist, RBC. "Strong buyer demand was a principal driver of the modest rise in homeownership costs. While the deterioration in affordability was felt to varying degrees across the country, it was mild in most cases." Looking ahead, the banks said it expects further challenges on the affordability front across Canada once the Bank of Canada begins raising interest rates in the fourth quarter of 2012 and assuming the European economy stays on the rails. "Exceptionally low interest rates have been the key force in keeping affordability from hitting dangerous levels in Canada in recent years," added Wright. "Affordability headwinds are likely to increase next year, as interest rates make their way towards more normal levels. We anticipate that the central bank will begin hiking rates gradually, however, which should help mitigate any widespread negative impact on the housing market. A gradual pace of increases will allow income growth to provide some offset." Stark regional divergences in affordability witnessed last year carried through to the first quarter of 2012. British Columbia's housing and, more expressly, the Vancouver-area market are situated at the weaker end of the affordability spectrum, while housing markets in Alberta and Atlantic Canada remain at the more affordable end. Local housing markets in Ontario had slightly less attractive affordability in comparison to the national average, while markets in Saskatchewan, Manitoba and Quebec were slightly more attractive. The Report: www.rbc.com/economics/market/pdf/house.pdf Source: http://www.mortgagebrokernews.ca/news/breaking-news/housing-affordability-slips/123780/

Mortgage Rules Remain Unchanged - For Now

The irony that bankers dangling some of the lowest rates in history are also asking Ottawa to tighten mortgage rules hasn't been lost on the Finance minister, now suggesting he'd rather sit pat. "I find it a bit off that some of the bank executives are taking the position that the Minister of Finance or the government somehow should tell them how to run their business," Jim Flaherty told reporters just outside Ottawa Thursday. "It's their market. It's not my market. "They decide what they want to charge in interest rates." While analysts are still parsing through those comments, a consensus is emerging that the government will hold off on further tightening of the country's mortgage rules, at least for now. TD's chief economist, among others, had urged Flaherty to use his budget address next week to announce one of three moves to slow demand for housing. On Thursday, the Minister hinted at none of those – a shorter amortization, a higher minimum down payment or new stress tests for borrowers. "With respect to tightening up the mortgage insurance market we've done it three times," he said. "If we have to tighten it some more we will," he said. "I'd like the market to correct itself, quite frankly, if it can." We have been hoping the government would let the current bull market exhaust itself rather than rein it in, potentially boxing in the country's housing industry. "The new housing market produces a lot of jobs in Canada so there's a balance that needs to be addressed," Flaherty said.