Homeownership costs in Canada grew in all housing segments late last year, driven by rising home prices.
Costs rose in the fourth quarter of 2009 and will likely continue to climb, Royal Bank of Canada's quarterly housing report said Monday.
Homeownership costs will keep rising as strong demand and a limited supply of homes put pressure on prices, the bank cautioned.
As well, “the anticipated and gradual rise in interest rates indicates that affordability is likely to gradually get worse as rates return to normal levels,” said Robert Hogue, RBC's senior economist.
Historically low mortgage rates, a race to buy before a new sales tax is introduced in B.C. and Ontario, and anticipated interest rate increases starting mid-year are driving demand, prompting speculation a housing bubble has been forming in recent months.
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The federal government moved last month to dampen the market by tightening rules for some people, particularly first-time buyers and speculators. These changes to the mortgage market could reduce demand when they take effect in April. However, the precise impact on the market is unknown, RBC said.
The bank's housing affordability measure captures the portion of pretax household income needed to service the costs of owning a home. Those costs rose “slightly” across all housing types in the fourth quarter.
“The effect of higher prices was largely mitigated by a small decline in mortgage rates and continued gains in household income,” Mr. Hogue said.
Despite the fourth-quarter increase, all affordability measures remain well below their levels from a year ago, the report said. Affordability improved in the past year due to a big drop in mortgage rates.
The Bank of Canada has said interest rates will likely remain at a record low through to June, and most economists expect swift increases after that as the economy recovers.
In the fourth quarter, RBC's detached bungalow benchmark rose 0.3 per cent to 40.6 per cent and the standard two-storey home increased 0.3 per cent to 46.7 per cent. The standard townhouse rose 0.2 per cent to 32.9 per cent. The standard condominium climbed 0.1 per cent to 28 per cent.
Vancouver remains the most costly market in the country. Housing affordability for a detached bungalow shows Vancouver in the top spot, at 69 per cent, followed by Toronto, Ottawa, Montreal, Calgary and Edmonton.
