Low interest rates make home ownership possible
Ashley Ford
Province
B.C. retains its dubious record of having the most expensive housing in the land, but according to data released yesterday, low interest rates still make home ownership here possible.
“B.C.’s housing market is back into a seller’s market as there is not enough housing supply to keep prices from rising,” RBC Economics said yesterday.
In separate reports, both Scotiabank and RBC Economics say a record number of Canadians now own their homes.
Last year, records were set for both the number of home sales and average prices. It also was the biggest year for housing starts since 1987 and the third-straight year of double-digit percentage increases in average selling prices, RBC Economics said.
The bank’s affordability index slightly improved to 33.3 per cent in the fourth quarter of 2004, from 33.6 per cent the previous quarter.
The index for major cities were: Vancouver, 47.7 per cent; Toronto, 42.5 per cent; Montreal, 31.4 per cent; Ottawa, 30.6 per cent; and Calgary 27.2 per cent.
The index, compiled since 1985, is based on the costs of owning a detached bungalow. The higher the index, the more costly it is to afford a home. For example, an index number 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.
But how long can Canada‘s hot housing run last? The factors driving home ownership — affordability and the relative cost of owning versus renting — “may be turning,” Scotiabank said.
“Low mortgage rates will maintain affordability, but some erosion is already under way due to the rise in home prices. At the same time, rising apartment-vacancy rates are improving the relative attractiveness of renting over buying,” it says.
Home prices have also been rising faster than rents, widening the gap between the cost of the typical monthly mortgage payment on an average priced home and the average rent on a two-bedroom apartment to about $300 in 2004.
That’s still only half the $600 gap that existed in 1990, when the previous housing boom went bust, but up from the low of approximately $100 in 1998, it said. And the gap will likely widen further this year pricing some potential buyers out of the market, said Scotiabank economist Adrienne Warren.
Scotiabank estimates that 67 per cent of Canadian homes are now owner-occupied, up from 65.8 per cent in 2001, meaning almost half a million households have bought homes in that period.
© The Vancouver Province 2005