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Housing affordability slipped in late 2009, RBC says.

courtesy of Canwest News Service

March 15, 2010
OTTAWA - The cost of owning a home increased slightly in the final quarter of 2009, according to an RBC report on housing affordability released Monday.

"While home affordability deteriorated at the national level in the fourth quarter of 2009, the change was relatively modest overall," Robert Hogue, senior economist at RBC said in the release. "The effect of higher prices was largely mitigated by a small decline in mortgage rates and continued gains in household income."

The RBC Housing Affordability study measure represents the proportion of pre- tax household income needed to service the costs of owning a home; the higher the measure, the more difficult it is to afford a home. For example, an affordability reading of 50 per cent means that home ownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.

Nationally, the detached bungalow benchmark inched 0.3 per cent higher to 40. 6 per cent, the standard townhouse rose by 0.2 percentage points to 32.9 per cent, the standard condominium climbed by 0.1 per cent up to 28 per cent and the standard two-storey home increased by 0.3 percentage points to 46.7 per cent. ``Despite the recent increase, all affordability measures remain well below their levels from a year ago,'' the report said.

For the average price of a detached bungalow, Vancouver was the least affordable at 69 per cent (up 1.4 percentage points), Toronto was at 49.1 per cent (up 0.1 percentage point) and Ottawa was the third least affordable at 40. 4 per cent (down 0.3 percentage points). Next was Montreal at 39.1 per cent (up 0.9 percentage points), then Calgary 37.1 per cent (up 0.1 percentage point) and Edmonton at 32.9 per cent (down 0.4 percentage points).

RBC projects that the cost of owning a home will continue to rise on strong demand and limited supply.

"The anticipated and gradual rise in interest rates indicates that affordability is likely to gradually get worse as rates return to normal levels, " said Hogue. "The significant drop in mortgage rates since late 2008 was the principal factor contributing to the overall improvement in housing affordability in the past year."

Markets in B.C. and Ontario have the added pressure of the new harmonized sales tax starting July 1, which will make buying a home more expensive.

Also, the federal government's recent announcement of changes to the mortgage market could reduce demand when the new rules take effect in April, the report notes. However, the precise market effect is unknown at this point.