Rising mortgage rates make housing less affordable.
May 22, 2006 - Housing in Canada is becoming less affordable, as financing costs and utilities rise faster than household incomes.
"While property taxes and utilities increased this past quarter, most of the deterioration in affordability was driven by a surge in home prices and rising mortgage rates," says Derek Holt, assistant chief economist of RBC.
Among the five major cities surveyed, however, Ottawa came out on top, with a standard detached bungalow in the nation's capital being the most affordable.
RBC's housing affordability index measures the proportion of pre-tax household income needed to service the costs of owning a home, including mortgage payments, property taxes and utilities. The most affordable housing class remains the standard condo, with an index of 27.4 per cent. A standard townhouse will require 31 per cent of income, followed by a detached bungalow at 38.8 per cent. Standard two-storey homes are still the least affordable housing type, consuming 44.5 per cent of household income.
"The continued upward pace of resale prices and mortgage rates into the second quarter of 2006 does not bode well for near-term affordability," Mr. Holt said.
In Ottawa, RBC says housing affordability has deteriorated slightly in the past year, mostly due to higher mortgage rates. But a single detached bungalow in the capital is the most affordable among Canada's five largest cities, consuming 28.9 per cent of household income. In Vancouver, the same house will eat up 64.4 per cent of income.
A standard Ottawa condo remains the most affordable type of housing, consuming 20.3 per cent of income, while a townhouse will require 24.4 per cent of income. A standard 2-storey is the least affordable, requiring 34.5 per cent of income for mortgage payments, utilities and property taxes.
According to RBC, new homes now represent about 32 per cent of all homes sold in Canada, compared to about 42 per cent in the late 1980s. At the same time, new home prices have generally been more stable than resale prices. But RBC says new home prices have begun to accelerate, though at a much slower pace than the late 1980s, when both new and resale prices were rising at comparably high rates.
© Chris Hoare - 2006