Julian
Beltrame, Canadian Press | 13/08/27
OTTAWA
— Home ownership has become less affordable for the average Canadian, but that
hasn’t stopped many from jumping into what may already be an overpriced market,
suggests a new report from the Royal Bank.
Why
there's no reason to panic about rising rates. There is a simple answer
to all this hysteria about mortgage rates going up. Find out more Royal Bank
says its housing affordability index reversed course in the second quarter of
this year in two of the three categories it measures — bungalows and two-storey
homes — after generally improving over the past year.
The
quarterly increase was not spectacular — 0.3 points to 42.7% on a detached
bungalow and 0.4 points to 48.4% on a standard two-storey home. The index on a
condo was unchanged at 27.9%.
As
with past samplings, Vancouver and Toronto continue to stand out as the least
affordable cities. During the second quarter, Vancouver’s affordability reading
rose 2.2 points to 82.1 on a detached bungalow, while Toronto’s edged up half a
point to 54.5.
By
contrast, other major municipalities were far more tame and below the national
average. On a detached bungalow, Montreal slid slightly to 38.1%, Ottawa was
mildly higher at 37.1, Edmonton was at 34.0 despite a 1.8 point gain, and
Calgary held steady at 33.0.
The
affordability index measures the cost of servicing a home, including mortgage
payments, utilities and taxes, in relation to a household’s pre-tax income. The
higher the reading, the less affordable is a home to a particular family.
RBC
chief economist Craig Wright noted that the deterioration in affordability did
not scare many Canadians from jumping feet first into the housing market during
the second quarter as sales actually surged by 6.4%, following a general
slowdown since last summer’s introduction of stiffer mortgage lending rules.
“We
saw a bit of a bounce-back in prices,” said Wright. “We had a series of
regulatory changes, but now it looks like the market has adjusted and now seems
to be recovering somewhat.”
The
report is for the April to June period and does not capture this month’s
announced increases of between 0.1 and 0.2% — 10 or 20 basis points— in posted
mortgage rates at several major banks. A 20-basis point hike in rates will
increase monthly payments up to $100 on a typical $500,000 mortgage.
“Mortgage
rates will be the next challenge,” Wright added. “The move upward we’ve seen
probably suggests that affordability will be a little more challenging (in the
third quarter).”
But
he noted that despite what has been a hot housing market in Canada, with prices
hitting new highs almost monthly, affordability remains close to historic
levels in part because interest rates are so low.
The
Bank of Canada has long warned Canadians to take a forward-looking approach to
home ownership and calculate what will happen to monthly payments once interest
rates begin to rise, which it says is inevitable.
But
Wright said the situation of affordability is more complex than simply interest
rates. A sharp spike in rates will cause problems, yet most, including the Bank
of Canada, currently anticipate the increases will be modest and gradual and
won’t likely start occurring until late next year. The central bank has kept
its short-term trendsetting rate at 1% for now.
As
well, Wright points out that the bank will likely only start a monetary policy
tightening phase once the economy starts improving, so the higher rates might
be offset by an improvement in employment and in incomes, which could offset
the negative impact on household finances. Higher rates might also lead to
lower real estate prices, which also improves affordability.
No comments:
Post a Comment