More Canadians than ever before now own their own dwelling, despite soaring housing prices, according to information from Statistics Canada and the country's biggest bank.
The Royal Bank of Canada (TSX:RY) recently released a report showing the cost of owning a home in Canada continued to climb in the second quarter, with affordability in Western Canada showing the biggest change.
On the same day, Statistics Canada said about 68.4 per cent of Canadian households were owned by their occupants, up from 65.8 in 2001 and 60.3 per cent in 1971.
Pascal Gauthier, a housing analyst with TD Economics, said new mortgage products have allowed Canadians to buy more expensive homes without increasing payments.
For example, people are now signing five-year mortgage contracts with a 40-year amortization rate, which was very rare in the past.
"This increases the overall interest costs, but spreads it out over a longer period of time," Gauthier said.
The increase in ownership is also attributable to demographics, as empty-nester Baby Boomers move to condos in droves, Gauthier said. In other words, more people may own their dwelling, but those households are increasingly located in condos and townhomes.
Meanwhile, another report from the Bank of Nova Scotia (TSX:BNS) economics department says Canadian home-price increases are not sustainable in the long term.
The fundamentals of Canada's housing market are solid, with little evidence of overbuilding or speculative buying, and a low volume of subprime mortgage lending to risky borrowers, Scotiabank economist Adrienne Warren said.
"Yet, there is little doubt that current trends are unsustainable," she said.
"Affordability is becoming increasingly stretched for many would-be buyers after almost a decade of rising home prices. More recently, economic risks have increased in the wake of the intensifying financial market turmoil stemming from the U.S. subprime mortgage problems."
Additionally, "from a long-term perspective," there is growing overvaluation in some parts of the country, "a precursor to a period of softening conditions," the report says.
Scotiabank surveyed 15 cities, and all except St. John's, N.L., have inflation-adjusted prices above their long-term trend. The national average deviation was eight per cent, ranging from one per cent in Ottawa to 25 per cent in Edmonton.
"At the peak of the prior two housing cycles in 1976 and 1989, national home prices were 12 per cent and 18 per cent, respectively, above their long-term trend," said Warren. "The smaller degree of overshooting this time around, and the sustainability of price appreciation, may reflect in part an undervaluation of Canadian real estate prices in the late 1990s and into the early part of this decade."
Warren added that Canada's overvaluation is small compared with other countries such as the United States, and price growth "remains consistent with short-term supply-demand dynamics."
However, she cautioned: "The further domestic home prices climb above underlying economic fundamentals, the greater the risk of an eventual correction."
Another report on condominium prices in eight major urban areas released by private mortgage insurance company Genworth Financial and the Conference Board of Canada indicates demand from aging Baby Boomers will push up prices in the condo market as the Boomers downsize.
"A lot of wealth is concentrated in that segment of the population," Gauthier said.
Saskatchewan - which economists say has the fastest-growing economy in Canada at a rate outpacing even Alberta - suffered its worst-ever quarterly deterioration of affordability, according to the bank, as an influx of potential buyers put pressure on the housing supply.
Among Canada's largest cities, a detached bungalow in Vancouver was the most expensive with the proportion of pre-tax household income needed to own a home coming in at 71 per cent. Toronto and Calgary followed at 45 per cent, Montreal at 36 per cent and Ottawa at 31 per cent.
