Housing Affordability Eroding: RBC

The Canadian Press May 20, 2011

Home ownership became less affordable during the first quarter, especially in Vancouver where it took nearly three-quarters of family income to pay for mortgages, property taxes and utilities, according to an RBC Economics report.

The bank's affordability scale, which measures the proportion of pre-tax household income needed to pay mortgages, finds that all three major housing types were less affordable in the first quarter.

Home ownership costs could continue to rise as the Bank of Canada is expected to soon resume raising short-term interest rates, but expected growth in household incomes will likely soften the blow, said senior economist Robert Hogue.

"Interest rates will likely soon start to rise again, leading to a period of steady increases in homeownership costs. This, in turn, will contribute to a flattening in Canadian housing demand going forward," said Hogue.

"We could experience some turbulence this spring and summer, given that new tighter mortgage lending rules in March and April likely shifted home buying activity to earlier in the year."

"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," Hogue said.