Housing affordability to ease in 2008

Alberta home buyers could be in for some much needed affordability relief this year - those in Ontario, maybe not so much.
Across the country, the percentage of pre-tax income needed monthly to own a home should ease a bit in 2008, said Derek Holt, assistant chief economist at RBC.
“I think it had gotten just about as bad as it could get, and that a modest amount of relief is coming across the whole country,” said Mr. Holt, co-author of a report on housing affordability released Thursday.
A sustained increase in prices caused housing affordability across the country to hit its worst point in 17 years in 2007. But while easing price gains and mortgage rates should help homeowners in 2008, Ontarians could still be out of luck, Mr. Holt said.
That's because his numbers don't take into account the impact of provincial property taxes, which could rise dramatically in Ontario after the recent end of a three-year freeze on property value assessments.
RBC expects things to calm the most in the overheated Western provinces, where affordability has hit an all-time low. In Alberta, resale house-price gains are expected to slow dramatically, from 30 per cent in 2007 to the 9 per cent range this year. Gains in Saskatchewan should cool from the 30 per cent range to about 15 per cent, according to RBC.
Across the country, RBC is expecting a 5 to 7 per cent increase in resale prices. That compares with a 10.8 year-over-year increase in 2007, according to data from the Canadian Real Estate Association (CREA).
The five-year posted mortgage rate in Canada is also set to decline by one half to three quarters of a percentage point by the end of the year, Mr. Holt said. Variable mortgage rates should also continue to fall, with the Bank of Canada expected to drop the overnight rate a further percentage point this year.
“A long string of house price gains that have outstripped income gains has been the prime culprit,” Mr. Holt said of last year's deterioration in housing affordability. That's unlike the last time owning a home was this tough – in the late 1980s and early 1990s when both unemployment and interest rates were in the double digits, he added.
In the third quarter of 2007, the last period for which data are available, almost every housing class in every major city got pricier, with the exception of Alberta condos and detached bungalows in Edmonton.
The priciest home was a detached two-storey in Vancouver, which ate up 72.4 per cent of pre-tax income. The most affordable residence to own was a Manitoba condo, which cost 18.9 per cent of monthly pre-tax income.


LORI MCLEOD Globe and Mail Update January 24, 2008 at 3:05 PM EST