For homeowners or those seeking to buy one, relief from deteriorating affordability is just around the corner, says a Royal Bank (TSX:RY) study, despite reporting the cost of owning a home reached its highest level since 1990 at the end of last year.
"We're forecasting both short- and long-term mortgage rates to fall further" in the months ahead, improving affordability in many areas of the country, Derek Holt, assistant chief economist at the Royal Bank, said in an interview last week.
"The Bank of Canada should be cutting rates further as the year wears on, so that will bring variable rate products down further," he said. "The longer-term five-year mortgage, we're forecasting that it'll drop by about three-quarters of a percentage point by year end."
Last year, "a long upward trend in house prices driven by a strong economy that has seen growth in the job market" was the primary driver for deterioration in affordability, Holt said.
The affordability study, which measures how much pretax household income it takes to own a home, found that condos are the cheapest, needing 30 per cent of pretax income.
A townhouse takes about 34.5 per cent, a detached bungalow 42.5 per cent while a standard two-storey home required 48 per cent of pretax income.
Those costs rose everywhere in the country except in Alberta, where the cooling housing market saw costs of owning a home - such as servicing a mortgage, maintenance, property taxes - drop in all categories.
Also last week, the Canadian Real Estate Association released figures showing that MLS resale housing activity declined in February this year from January levels.
Seasonally adjusted MLS sales activity in the country's major markets edged down 6.4 per cent month-over-month to 26,588 units in February. The monthly decline largely reflected fewer sales in Toronto.
On the bright side, the RBC report says dropping mortgage rates, slower gains in house prices and income growth should improve affordability across most markets.
Vancouver was the most expensive market at about $650,000 for the standard two-storey home. That's defined to be the same benchmark at about a 2,200-sq.-ft. home with two-car garage in every region of the country.
Toronto comes next at $476,000, followed by Calgary at $462,000 and Edmonton at $354,000. In Atlantic Canada, the average price is $210,000.
In Alberta, where the housing market is cooling as scarcities in labour and supplies are addressed and people leave the province in search of jobs in other western provinces such as the oilfields in Saskatchewan, the sales-to-listings ratio has done an about-turn, said Holt.
It "has gone from signalling very, very tight markets over the past couple of years to suddenly within the past six months or so markets with a fair amount of slack in them," he said.
In Calgary, for instance, the sales-to-listings ratio was 90 to 95 per cent at the peak in 2006, and then drifted down to about the 80-per-cent mark in early 2007, said Holt. "Right now it stands just a hair over 40 per cent."
There's been a flood of new listings in the Calgary housing market and a curtailment of selling activity, he said. This has combined to lead to the drop in the sales-to-listings ratio. The story is similar in Edmonton.
