Canada's largest bank is predicting a period of stability in the housing market next year as rising mortgage rates are offset by improvements in the job market and household income.
"We don't see any kind of imbalances out there that need to be corrected or rectified over the next year or so, so we think that probably will translate into modest everything," RBC senior economist Robert Hogue said.
"Given the roller-coaster we have been on over the last two years, a little bit of stability is probably going to be welcome," Mr. Hogue said.
He explained that in the near term there may be some downward pressure on prices, but that will stabilize and house price will begin moving up again, albeit modestly, next year.
Canadian fixed-rate mortgages spiked upward in the spring, but have since seen a steady decline, helping increase affordability for homebuyers this year. Even the Bank of Canada, which raised its key rate and with it variable rate mortgages and lines of credit, has put additional rate hikes on hold for now.
But rates - both variable and fixed - are expected to resume their march higher next year from near-record lows. That would increase the cost of borrowing money to buy, renovate or furnish a home.
However, Mr. Hogue said there are still some unknowns for the economy, including uncertainty about the economic recovery in the United States.
"If it turns out the U.S. economy is weaker than we expect then maybe the kinds of increases in interest rates that we're expecting could be delayed even more," he said.
Jason Scott, regional manager for Urban Mortgage Edmonton, said the number of listings for homes for sale is up, but the economy remains strong in Alberta.
"The market has slowed in terms of sales, there are a tonne of listings, but you try to get into a restaurant in Edmonton on a weekday night and you're waiting in line," Mr. Scott said.
He is recommending his clients go for a variable rate mortgage because, even though the Bank of Canada is expected to rate rates, the spread between a variable-rate and fixed-rate mortgage remains significant.
"If clients can make payments based on a five-year fixed rate, but take the variable rate, they come out ahead," he said.
In the third quarter, the Royal Bank said the cost of home ownership was lower, thanks to lower mortgage rates and softer house prices since earlier in the year.
The bank's affordability measure shows how much pre-tax income is required to pay a mortgage, property taxes and utilities for the home.
The bank said all the provinces saw improvements in housing affordability during the quarter, especially British Columbia.
The report suggested that housing affordability improved at the national level by between 1.4 and 2.5 percentage points from the second quarter, depending on the type of property, but remained above the long-term average.
However, the cost of home ownership in British Columbia remained high following increases that began in the first quarter of 2009.
A detached bungalow in B.C. ate up 59 per cent of pre-tax income, while two-storey homes ate up 67.5 per cent of income and condos required 32.9 per cent of pre-tax income - all above the national average.