Housing affordability erodes quite strongly in Sask during Q1: RBC
Housing affordability in Canada deteriorated for the third consecutive quarter and is likely to erode further over the next 12 to 18 months, despite changes in conditions which point to more balanced real estate markets, according to the RBC Housing Trends and Affordability study released today. Anticipated interest rate hikes are expected to increase the cost of ownership in the months ahead, even as the heat comes off of real estate markets, but RBC believes that job creation and income gains “should partially mitigate” the effect of rising rates and keep affordability levels below previous peaks.
Regionally, the greatest erosion in housing affordability occurred in Saskatchewan and Manitoba.
Owning a home in Saskatchewan took a bigger chunk of household budgets in the first quarter. This more than reversed a small decline in the last three months of 2009. RBC affordability measures rose between 0.9 and 1.6 percentage points, representing some of the stronger increases in the country (although trailing far behind British Columbia). After flattening or declining marginally in previous quarters, housing prices picked up notably in the province in the first few months of this year; however, with sales slowing and the number of homes available for sale growing more recently, further price increases are unlikely to be as hefty in the near term. Despite the deterioration in the first quarter, affordability measures remain well off the peak levels of early 2008 – which were also the all-time highs in Saskatchewan.
Read the full report here.
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Norm Fisher
Royal LePage Saskatoon Real Estate
9 comments so far. We'd love to hear your thoughts.
May 25th, 2010 at 1:19 PM
Very interesting- I still can’t find the long-term historical data I’d like to see, but my armchair economist perspective is that Saskatchewan real estate has “priced in” significant continued job growth and in-migration, both of which depend on highly cyclical factors (i.e. resource prices). RBC mentions as much in its presumption of future job creation and income gains.
As interest rates go up, it will be interesting to see how these projections materialize. As a Saskatchewan booster and real estate owner I’m hopeful that RBC is right, but I also know that these gains are from guaranteed.
May 25th, 2010 at 3:33 PM
RBC projects a prime rate of about 5% by the end of next year. A 2% or more increase in rates will not collapse the market, it may take out some confidence, but nothing most have to worry about. This city and province have done quite well in the last few years and if 09 is the worst we see, our future prospects will be fine.
Go waterpark!
May 25th, 2010 at 5:16 PM
Doug,
I don’t think many are suggesting that a 2% increase will “collapse the market”, but it would certainly affect the market.
A 2% hike (along with the tighter mortgage qualifying rules recently implemented) would certainly have an effect on housing prices, all other things being equal.
Most people would say that all other things won’t remain equal; that while mortgage rates go back up, Saskatchewan will continue to add jobs and increase incomes and in-migration.
I hope that’s what happens. But if interest rates go up and we don’t get those expected gains in jobs, incomes and in-migration, prices will go down. That’s just supply and demand. Affordability is a big deal.
Listen to me, I’m starting to sound like one of those 2008 Bears that chased me away from this blog in the first place!
May 25th, 2010 at 6:50 PM
Hey guys,
Let me jump in here. I’ll start by saying I’m not real worried about the bottom falling out. I think we have lots of good reasons to feel hopeful about Saskatchewan’s future right now. Having said that, I’ll point out that a prime rate that moves to 5% represents a rate increase of more than 50%. I’m not sure that it will be “nothing to worry about” for a lot of people. This probably isn’t a big deal if you bought pre-boom but if you have a 275,000 mortgage this projected increase in the prime ups your monthly payment from $1197 to $1600, a 34% increase. That’s if you signed a 25 year mortgage. If you happened to go 35 years, your monthly goes from $945.13 to $1378.90, an increase of 44%.
A report released today on consumer debt in Canada suggests that over 20% of Canadians cannot manage their debt. 42% said their debt increased in the past three years. 58% of those attributed their rising debt to “day-to-day living expenses.” These people are living day to day on their credit card.
I think a 35-45% increase in the monthly mortgage payment could be something to worry about. We’ll see some problems develop here. It’s not completely clear how much of a problem. If you’re living anywhere west of here your mortgage is probably more like $400K so the ramifications of a doubling of the prime rate is even bigger.
May 25th, 2010 at 8:44 PM
The big five expect prime to around 5% by next fall. If 20% of canadians are having trouble now, what is going to happen when the rates increase? The Bank of Canada said in Dec of 09 that Canadians debt to income ratio will surpass the Americans sometime this year. Rising interest rates and record debt levels will hurt quite a few households, but for most they should get through ok. I think. I hope.
And, I don’t mean to be doom or gloom but one can not go through a day without some bad economic news about the EU, the States or a slowing China which would have a negative effect on our commodity based economy.
Norm, what are your thoughts on the whitewater park? Personally, I think it is a no brainer and I am encouraging people to learn more about it as it seems many do not understand it http://whitewatergreenpower.com/ I hope it is ok to link to it.
May 25th, 2010 at 9:13 PM
Doug,
No problem with the link.
I like the waterpark. Most of what I’ve heard is pretty promising. If it can be pulled off without upsetting the eco-system, how could we object to a idea that generates power and fun in one package?
May 25th, 2010 at 9:55 PM
Norm,
“a prime rate that moves to 5% represents a rate increase of more than 50%.”
Kinda more like more than 100%, really.
The “basic annuity formula” or any mortgage calculator shows that for interest rates
between 4 and 14 percent on a mortgage amortized over 25 years, an increase in lending rate by one percent would result in an average monthly payment increase of 9 percent. So, as mortgage rates go up, the cost of borrowing translated into monthly payments will rise almost 10 times faster. I would certainly agree that might be something to worry about for those reported 20% of Canadians struggling with debt payments now.
May 25th, 2010 at 10:15 PM
“a prime rate that moves to 5% represents a rate increase of more than 50%.”
Kinda more like more than 100%, really.
Lol. Yes, well, Kinda. Too funny. Thanks Jen.
May 26th, 2010 at 1:20 PM
I generally think the government has done a good job of easing the Canadian public into the upcoming higher-interest environment, starting with the kaibosh on 40-year mortgages (I have one myself, but I don’t think they were a good idea) and continuing on with the tighter mortgage rules of the last few months. I think these moves should keep Canadians from being stretched as thin as they otherwise would have been when our collective mortgage rates start going up.
And I completely agree, Norm, that the “bottom falling out” is not very likely at all, barring a complete crash in resource prices. I think the worst we’re looking at is just a period of home prices not rising faster than inflation. But this is all, of course, just my opinion.