Trend towards improved housing affordability reverses in Q3-2009: RBC
From RBC’s November 2009 Housing Trends and Affordability Study
The string of significant improvements in housing affordability in Canada finally came to an end in the third quarter. RBC’s affordability measures rose at the national level for the first time in six quarters for all housing types.
All provinces and major metro markets shared in the deterioration in affordability in the third quarter. British Columbia, especially Vancouver, posted the biggest increases by far in the RBC measures. Toronto and Calgary also recorded notable increases for some housing types, while the rise in the cost of home ownership in the rest of the country has generally been modest.
After steadily improving for more than a year, housing affordability in Saskatchewan deteriorated modestly in the third quarter, with RBC’s affordability measures climbing between 0.5 and 1.0-percentage points. This reflected higher mortgage payments that have resulted from the small increase in mortgage rates as well as stronger property values in many areas of the province. While the cost of home ownership declined substantially in the past year, it remains historically high in the province, as it has only partly reversed the unprecedented increase registered during the boom from late-2006 to early-2008. However, levels that prevailed prior to the boom might have been depressed by previously unfavourable migration flows, which have since reversed. Overall, resale activity in Saskatchewan continues to carry tremendous momentum, being especially vigorous in the past few months with levels close to the records set in late-2007 and early-2008.
Read the full RBC report here.
Thanks to Jen for the heads up on the release of this report.
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Royal LePage Saskatoon Real Estate
15 comments so far. We'd love to hear your thoughts.
November 26th, 2009 at 1:46 PM
What exactly defines affordability and what is the threshold set at before a home is considered affordable?
I feel like this is a concept that performs along the same lines as house renovation credits and tax rebates. That so long as you’re viewing them from the perspective of a targeted demographic (usually the extremely poor or the well to do), things line up.
It seems as soon as you travel towards the middle class, the wheels fall off the bus.
November 26th, 2009 at 3:55 PM
Alex,
In this particular study, “affordability” is measured by the percentage of household income required to service debt, pay taxes and utilities on several predefined types of homes at various levels. 32% of income is considered affordable.
November 26th, 2009 at 6:07 PM
Alex,
What I consider to be affordabile is 30% of household income servicing a 25 yr amortized mortgage + taxes + utilities.
Depending on how RBC crunches numbers, and banks tend to change the way they do it time to time. 32% servicing a 35yr amortized mortgage + taxes + utilities is not affordabile (not in your best interest).
35yr amortization is a recent “financial innovation”, it does not have a proven track record in the marketplace like 25yr amortization, and is not the norm as many homebuyers may be lead to believe.
Has any homebuyer ever paid off a mortgage with 35yr amort?
November 26th, 2009 at 7:17 PM
RBC’s calculations are based on a 25-year amortization but it does assume 25% equity.
November 26th, 2009 at 9:05 PM
25 year amortizations are next to impossible for most people to sustain with current house prices.
November 26th, 2009 at 10:16 PM
Norm, “32% of income is considered affordable.” Then according to RBC’s study, the only thing affordable in Saskatchewan are condominiums (26.8%) and possibly townhouses (33.7%). Detached bungalows (41.2%) and two-storeys (44.0%) are really unrealistic then. The only reasonably-priced places to live would appear to be Manitoba and Atlantic Canada.
Alex, “25 year amortizations are next to impossible for most people to sustain with current house prices.” Not too mention 25% equity (I think 5-10% is more common).
November 27th, 2009 at 7:04 AM
Jason,
That true, and I don’t think anyone is trying to argue that housing in Saskatchewan, or almost anywhere else in Canada is “affordable” by traditional measures. I did notice though that Saskatoon’s numbers are considerably better than those of the province. I suspect that’s due to higher average incomes within the urban areas?
Alex,
January 2007? That’s not making sense to me man! I think if you check your paper trail you’ll find it was January 2008(?) This blog started in November 2006 and I didn’t ever hear from you until into 2007 at some point.
Here’s what I’d do. Call your mortgage person and ask for the details of your mortgage. Interest rate, remaining term, balance at the end of the term, etc. Once you have that you can play on some mortgage calculators and do some “what if” scenarios. What if rates go to X? Remember, your initial plan was to handle the mortgage as if it were a shorter term mortgage? What is you throw down an extra $100 a month for the next three years? Ask your Realtor for a ballpark value in today’s market and you can do some what ifs there as well.
You purchased a decent entry level home at a good price before values went crazy. Manitoba is more affordable than most. I suspect that you’re fine. I think these exercises will help you feel better.
November 27th, 2009 at 8:29 AM
Sorry Norm, yeah 2008. Missed it by one key!
I’ll definitely do that and I’ll be finding out at least what my “escape costs” are. I don’t have a mortgage broker at this point, so I’d be dealing with my mortgage provider directly.
That said, I have good advice from my local Royal LePage guy
(Does everyone at Royal kick so much ass?)
November 27th, 2009 at 1:09 PM
Alex, don’t forget the Limitations of Civil Rights Act in Saskatchewan.
http://www.justice.gov.sk.ca/Limitation-of-Civil-Rights-Act
Depending on whether you’ve taken out a HELOC or refinanced, your “escape costs” could be zero (aside from a rather large blemish on your credit rating). My understanding is that if you refinance with another institution you may lose this protection, so it would be worth investigating from a legal standpoint before proceeding with any new lender.
November 27th, 2009 at 1:11 PM
Norm, how does one ‘embed’ images (or is this something you would prefer we not do). The occasional small image or graph might be beneficial. No worries either way, thanks.
November 27th, 2009 at 4:06 PM
Jason,
I just used the html insert image tag. I don’t mind if anyone posts appropriate images.
November 27th, 2009 at 4:08 PM
Jason,
Alex is in Manitoba.
November 27th, 2009 at 4:19 PM
Nix that then… On the flip-side, Manitoba was one of the most affordable places to buy a home in Canada.
November 28th, 2009 at 11:08 AM
Well, there’s also no telling what Manitoba might have in place.
We are about as progressive as Saskatchewan has been in the past. In many ways, our province learned our social ideals from yours.
Although I doubt I’ll need such protections, Manitoba and especially the area I’m in doesn’t play the bubble game. Slow, sound and patient decision making with all the facts will win through.
November 28th, 2009 at 1:08 PM
Good points Alex. Further, the more dramatic price increases came to your area after you purchased. I’d be very surprised if prices in your area dropped back below the levels they were at when you bought. I think the biggest concern is what may happen to rates and how high they’ll go. If you’re feeling like a potential increase in payments may be tough to manage now may be as good a time as any to make a change.
Glad to hear that your Royal LePage guy is helpful. Thanks for the kind feedback.