Lower borrowing costs drive improved affordability in Q4-2010: RBC

Lower borrowing costs in the final quarter of 2010 helped drive a “modest” improvement to housing affordability for Canadians, even though house prices saw small increases across most of the nation during that time, a new report from RBC Economicsstates. The slight improvements are likely short lived as interest rates have recently started to rise and RBC expects that Canadian financial institutions will continue to move mortgage rates higher. The report predicts an increase of 250 basis points (2.5%) by the close of 2012.

It’s worth noting that the carrying costs for a typical detached bungalow in Canada required 39.9% of household income in the fourth quarter, significantly more than your lender would likely approve you for, but slightly less than what RBC says is the “long-term average.”

Here’s what the report has to say about Saskatchewan.

The Saskatchewan housing market finished 2010 on an enviable note. Home prices, for the most part, rose slightly in the fourth quarter, yet housing affordability improved for the second consecutive time. The provincial home resale market gained back solid forward momentum in the second half of last year (notwithstanding some softening in the final months), which contributed to re-establishing a stronger balance between demand and supply. Generally, the price increases in the fourth quarter more than reversed declines in the previous period but were too small to negate the beneficial effect of lower mortgage rates on affordability. The RBC Measures fell between 0.6 and 1.1 percentage points in the quarter, although the levels continue to be modestly above historical averages in the province. In our view, the Saskatchewan market will take its current affordability position in stride as a rebound in provincial economic growth, and, especially, continued strong migration inflows will support housing demand this year.

Read the full report here.

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Norm Fisher
Royal LePage Vidorra