Fiona Anderson
Sun
Lower interest rates have made owning a house more affordable in British Columbia and across the country, but high prices are still keeping the dream of home ownership out of reach for most.
The amount of pre-tax household income needed to service the cost of owning a detached bungalow in the province declined to 52.8 per cent during the second quarter of 2005, down from 55.3 for the previous three months, a new RBC housing affordability index suggests. Servicing costs include mortgage payments, assuming a 25-per-cent down payment, property taxes and utilities. A two-storey home requires more than 60 per cent of the average household’s after-tax income, down about one per cent.
“Amazingly, affordability got better in B.C. even though house prices have gone up by so much,” RBC economist Allan Seychuk, the author of the study, said in an interview on Wednesday.
Falling mortgage rates, growing incomes and a slowdown in the increase in house prices have all worked together to improve affordability. But with the index still well above the 32 per-cent level that banks look at before providing a mortgage, “the average person with a median income is not buying the average house in Vancouver or B.C.,” Seychuk said.
Condominiums, on the other hand, are more affordable in Vancouver than they are in Montreal or Toronto, he said. Only 29 per cent of household income is needed to service the purchase of a condominium, the affordability index found. The index doesn’t take into consideration sizes of apartments, so the relative affordability may be because condominium units are much smaller in Vancouver than elsewhere in the country. Building smaller apartments is often the way builders make housing more affordable, Seychuk said.
The affordability of housing across Canada eased to 36 per cent during the second quarter from 36.5 in the first quarter.
The least affordable province was British Columbia. Only Alberta became less affordable, with its index rising to 28.4 from 28.1. The indexes for the other provinces included: Quebec 34.6, Ontario 34.8, Manitoba 30.6, Saskatchewan 27.9.
The least affordable of five major cities ranked was Vancouver at 55.3, while the most affordable was Ottawa at 32.1, followed by Calgary at 32.8, Montreal at 34.3, and Toronto at 42.1.
Nationally, the affordability indexes for other types of housing were 41.8 for a standard two-storey home, 29.1 for a standard townhouse and 25 for a standard condominium.
Higher mortgage rates, which are expected after Sept. 7 when the Bank of Canada governors meet to set the prime rate, will act to reduce housing affordability in all markets, the report said.
The good news for home buyers is that the increase in mortgage rates is expected to be moderate but enough to dampen price increases. RBC, for example, expects the posted five-year mortgage rate will rise by less than a percentage point over the coming year to about 6.5 per cent from what now is about 5.8 per cent.
However, Seychuk cautioned the actual increase in rates for home buyers might be more if discounts, which are now as much as 2.5 percentage points below the posted rates, are reduced.
© The Vancouver Sun 2005