http://ca.news.yahoo.com/home-ownership-harder-first-quarter-prices-rise-mortgage-090123396.html
TORONTO - Home ownership became less affordable in the first quarter, especially in Vancouver where soaring prices pushed housing costs to three-quarters of family income, and it could get even tougher for Canadians in coming quarters, according to an RBC report.
Costs associated with owning a detached bungalow in Vancouver ate up an average 72 per cent of a middle class family's income, an increase of 3.4 percentage points in the first-quarter of this year, the latest RBC Economics housing report found.
The measure is based on current property values, which are being skewed by a surge in sales of luxury homes, meaning the average Vancouver family is not actually spending a majority of its income on housing.
Still, the data indicates average families can't afford much more than a condo in that market, RBC senior economist Robert Hogue said Friday.
"What raises our concern is that looking forward we expect interest rates to start rising again," he said.
Rising short-term interest rates, which affect variable rate mortgages, combined with climbing food and gasoline prices, will put Canadian households under more pressure going forward and housing will become even less affordable over the rest of the year, he said.
"That will have a disproportionate impact on the Vancouver market ... and push down the degree of affordability even more."
While Vancouver's frothy market appears to be something of an anomaly — a phenomenon driven by foreign investment and limited space for new development — housing costs in other major Canadian cities were also on the rise.
Housing expenses consumed an average of 47.5 per cent of income in Toronto, 43.1 per cent in Montreal, and 35.9 per cent in Calgary. The national average rose slightly to 40.5 per cent, just higher than the 10-year average of 39 per cent.
"Affordability deteriorated across Canada in the first-quarter," Hogue said.
"At worst, the Canadian housing markets are slightly unaffordable — Vancouver being the exception."
National average home prices have increased eight per cent year-over-year in the last three months and sat at $372,544 in April, despite a slowdown in housing sales. In Vancouver, average home prices were $879,039 last month.
Average home prices in Vancouver nearly doubled the national average home price in the first three months of the year, according to data from the Canadian Real Estate Association.
The push into higher-end homes is likely driven by foreign buyers, particularly from Asia, scooping up properties in specific areas, such as multicultural Richmond and ritzy West Vancouver, said CREA's chief economist, Gregory Klump.
"When you're in an economic paradigm shift where you've got an emerging wealthy class in China, my anecdotal evidence is you've got some Chinese investments coming in and scooping up those properties."
China's economy is undergoing some of the most rapid expansion in the world and as such many of the one billion people living there are being lifted higher in the socio-economic strata. Vancouver's multicultural vibe and scenic setting, along with its proximity to Asia, make it a prime location for wealthy Chinese investors.
"There's a strong connection to Asia ... Vancouver has been the traditional gateway for Asians to get into Canada," Hogue said.
But high home prices are pushing more middle-class Vancouver residents into condos — the most affordable type of housing.
Foreign investment in new luxury condos is also helping to drive average home prices in Toronto higher — to $477,407 last month.
"We get those stories in Toronto, probably not as central of a factor as it is in Vancouver ... but it does play a role in the largest metropolis in Canada."
Climbing home prices, along with tepid wage growth and an expected increase in short-term interest rates later this year, could mean Canadians will see housing costs eat up an even bigger portion of their incomes in the coming quarters, said RBC senior economist Robert Hogue.
“Interest rates will likely soon start to rise again, leading to a period of steady increases in home ownership costs. This, in turn, will contribute to a flattening in Canadian housing demand going forward,” Hogue said.
In addition to higher home costs, Canadians are also grappling with rising fuel and food costs and paying more for those staples, which means consumers have to rein in spending in other areas, something that could have broad implications for the economy.
The bank's affordability scale, which measures the proportion of pre-tax household income needed to pay mortgages, property taxes and utilities, finds that all three major housing types were less affordable in the first quarter.
The amount of income taken up by housing costs on a detached bungalow rose 0.7 of a percentage point to 40.5 per cent. The figures for a standard two-storey home and a condominium both rose 0.2 of a percentage point to 46.2 and 27.7 per cent, respectively.
By Sunny Freeman, The Canadian Press | The Canadian Press – Fri, 20 May, 2011
TORONTO - Home ownership became less affordable in the first quarter, especially in Vancouver where soaring prices pushed housing costs to three-quarters of family income, and it could get even tougher for Canadians in coming quarters, according to an RBC report.
Costs associated with owning a detached bungalow in Vancouver ate up an average 72 per cent of a middle class family's income, an increase of 3.4 percentage points in the first-quarter of this year, the latest RBC Economics housing report found.
The measure is based on current property values, which are being skewed by a surge in sales of luxury homes, meaning the average Vancouver family is not actually spending a majority of its income on housing.
Still, the data indicates average families can't afford much more than a condo in that market, RBC senior economist Robert Hogue said Friday.
"What raises our concern is that looking forward we expect interest rates to start rising again," he said.
Rising short-term interest rates, which affect variable rate mortgages, combined with climbing food and gasoline prices, will put Canadian households under more pressure going forward and housing will become even less affordable over the rest of the year, he said.
"That will have a disproportionate impact on the Vancouver market ... and push down the degree of affordability even more."
While Vancouver's frothy market appears to be something of an anomaly — a phenomenon driven by foreign investment and limited space for new development — housing costs in other major Canadian cities were also on the rise.
Housing expenses consumed an average of 47.5 per cent of income in Toronto, 43.1 per cent in Montreal, and 35.9 per cent in Calgary. The national average rose slightly to 40.5 per cent, just higher than the 10-year average of 39 per cent.
"Affordability deteriorated across Canada in the first-quarter," Hogue said.
"At worst, the Canadian housing markets are slightly unaffordable — Vancouver being the exception."
National average home prices have increased eight per cent year-over-year in the last three months and sat at $372,544 in April, despite a slowdown in housing sales. In Vancouver, average home prices were $879,039 last month.
Average home prices in Vancouver nearly doubled the national average home price in the first three months of the year, according to data from the Canadian Real Estate Association.
The push into higher-end homes is likely driven by foreign buyers, particularly from Asia, scooping up properties in specific areas, such as multicultural Richmond and ritzy West Vancouver, said CREA's chief economist, Gregory Klump.
"When you're in an economic paradigm shift where you've got an emerging wealthy class in China, my anecdotal evidence is you've got some Chinese investments coming in and scooping up those properties."
China's economy is undergoing some of the most rapid expansion in the world and as such many of the one billion people living there are being lifted higher in the socio-economic strata. Vancouver's multicultural vibe and scenic setting, along with its proximity to Asia, make it a prime location for wealthy Chinese investors.
"There's a strong connection to Asia ... Vancouver has been the traditional gateway for Asians to get into Canada," Hogue said.
But high home prices are pushing more middle-class Vancouver residents into condos — the most affordable type of housing.
Foreign investment in new luxury condos is also helping to drive average home prices in Toronto higher — to $477,407 last month.
"We get those stories in Toronto, probably not as central of a factor as it is in Vancouver ... but it does play a role in the largest metropolis in Canada."
Climbing home prices, along with tepid wage growth and an expected increase in short-term interest rates later this year, could mean Canadians will see housing costs eat up an even bigger portion of their incomes in the coming quarters, said RBC senior economist Robert Hogue.
“Interest rates will likely soon start to rise again, leading to a period of steady increases in home ownership costs. This, in turn, will contribute to a flattening in Canadian housing demand going forward,” Hogue said.
In addition to higher home costs, Canadians are also grappling with rising fuel and food costs and paying more for those staples, which means consumers have to rein in spending in other areas, something that could have broad implications for the economy.
The bank's affordability scale, which measures the proportion of pre-tax household income needed to pay mortgages, property taxes and utilities, finds that all three major housing types were less affordable in the first quarter.
The amount of income taken up by housing costs on a detached bungalow rose 0.7 of a percentage point to 40.5 per cent. The figures for a standard two-storey home and a condominium both rose 0.2 of a percentage point to 46.2 and 27.7 per cent, respectively.
By Sunny Freeman, The Canadian Press | The Canadian Press – Fri, 20 May, 2011