and could push more people in to rental properties.
There was a “slight erosion” in home affordability in the second quarter of 2012, according to research from Royal Bank of Canada released Monday.
This was the second quarterly increase in the cost of owning a home this year following decreases in the second half of 2011.
As temporary promotional mortgage rates abate and the prospect of a higher benchmark interest rate from the Bank of Canada as soon as early 2013, homes are set to become even less affordable in the near future.
The cost of owning a single family detached bungalows and two-story homes edged up over the quarter, while the cost of owning a condominium remained flat, the RBC report said.
The data showed the cost of owning a two-story home takes up 49.4 per cent of the median pretax household income, up 0.6 per cent from the first quarter. The cost of owning a bungalow edged up 0.2 per cent to 43.4 per cent over the same period, while condominium costs took up 28.8 per cent of a household’s income.
Rising costs “may divert households toward some other types of housing or … maybe renting,” said Robert Hogue, a senior economist at Royal Bank of Canada.
The slow deterioration in affordability will act to cool demand, Mr. Hogue said, which policy makers might see as a positive development.
“I think policy makers would not want to see a significant deterioration in affordability, although I think they would expect some deterioration given that monetary policy is likely going to [become tighter],” Mr. Hogue said.
Less affordability will further cool Canada’s housing market which saw resale volumes fall in May and June and remain flat in July.
The most recent figures from the Canadian Real Estate Association show average home prices rose in 73 per cent of the regions tracked between June and July. But there were price declines in the major Toronto and Vancouver markets.
Still, RBC research shows Vancouver leads the country as the least affordable housing market. The costs associated with owning a benchmark detached bungalow in that city eat up 91 per cent of the median pretax household income, significantly more than in other major cities.
Homeowners’ costs in Toronto, including mortgage payments, property taxes and utilities, take up 54.5 per cent of a household’s income, compared with 41.9 per cent in Ottawa and 40.4 per cent in Montreal. In Calgary, the data show the comparative figure much lower at 36.7 per cent, which Mr. Hogue said is mostly related to cheaper utilities bills in the city.
Ora Morison – The Globe and Mail- Published Monday, Aug. 27 2012