• TSX -77.68
• DOW -122.36
• Dollar -.18c to 95.06cUS
• Oil -$.58 to $73.97US per barrel.
• Gold +$.30 to $1,212.20 USD per ounce
Canada won't fall victim to foreclosure wave: Report
John Shmuel, Financial Post
Canada's housing market is expected to cool off this year and next, but isn't at risk of falling victim to a U.S.-style foreclosure crisis anytime soon, according to a new report by debt-rating firm DBRS Ltd.
DBRS said in the report that Canada will continue to fare well in comparison to its neighbour to the south when the Canadian housing market corrects itself and interest rates are tightened. That is because lending practices here are much more sound than in the U.S.
"The likelihood of us having the kind of situation they had in the U.S. is extremely low," said Jerry Marriott, managing director of structured finance at DBRS . "It's a combination of the lending practices prior to the peak in 2007 - they were more restrained, so there were better underwriting practices in Canada. We also think there are a number of factors in the Canadian market which have lent themselves to more prudent lending."
Those factors includes less aggressive lenders in the market, as well as systems designed to keep people paying their mortgages.
Mr. Marriott said that a cooling effect is gradually taking hold in the housing market as credit availability begins to tighten, and the HST factors into home buying decisions in Ontario and British Columbia.
That means there's a greater likelihood this year that there will be a correction in housing prices rather than a continued increase. Mr. Marriott said the DBRS expects the market to cool throughout the year and continue to cool into 2011. That echoes analysts expectations, who also expect prices to drop as well. A recent report by TD Bank predicts prices will fall by 2.7% in 2011.
"If you add up the factors you would look at as to whether there's going to be further price increases or the potential for a correction, we don't see there's a lot of factors supporting further price increases," Mr. Marriott said. "But there are a number of factors that show there might be some moderation in housing prices."
That may bode well for potential buyers after a report by CIBC this week said that on average, Canadian home prices are currently 14% over their "fair" value - that represents about 1.5 million homes, or 17% of all dwellings.
The report also highlights that Canadian households continue to have a particularly high level of debt, something that the DBRS notes is part of an ongoing trend. But it tempers that by adding that household debt is not as worrying as some analysts have suggested.
"We think the measurement of household leverage is subject to a fair amount of interpretation," said Mr. Marriott.
For instance, the debt-to-disposable income shows Canadians are generally more indebted than Americans - however, the report outlines that this doesn't reflect certain differences between the two countries that affect income, such as the fact that the U.S. has lower taxes but that Americans pay more money toward their health-care bills.
"At the end of 2009, Canadian households remained financially less leveraged by 10% to 45% compared with U.S. households," the report said. Overall, after adjustments, Canada had a household liabilities-to-total gross income ratio of 116.8% at the end of 2009, while the United States's ratio was 161.5%.
But Canadian household debt is growing faster. Household liabilities increased by 29.5% in Canada between 2007 and 2009. In the use, household debt grew just 5.3% during the same period.
Overall, mortgage lending in Canada reached $958.8 billion at the end of 2009. That's more than double the $414.1 billion ten years ago. When including home equity lines of credit, outstanding mortgage-related credit was more than $1 trillion.
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/story.html?id=3081970#ixzz0pVaLC07i
Carney's big call
Paul Vieira, Financial Post
Ottawa -- Bank of Canada governor Mark Carney has had a busy time of it since taking over as the country's central banker 27 months ago, mostly tackling the financial crisis, mapping out the road to recovery and reassuring Canadians that at the end of the day the bank's extraordinary policies would work.
The one thing he has yet to do during his term, however, is raise interest rates. That might be about to change on Tuesday. If he does pull the trigger - and that is what most analysts expect - it won't be after grappling with competing forces that convey two starkly different messages about the economic outlook.
"We are at point where it is a tug of war between structural issues that are facing the eurozone and a very strong economic cyclical backdrop," says Stéfane Marion, chief economist at National Bank Financial.
Weighing on the governor are the economic data, which call out for a rate hike - as much as 50 basis points, some reckon. The data have been consistently strong and surprising to the upside. Job creation is in full swing, with a record 109,000 workers added to payrolls in April; consumers are buying up goods at a healthy pace, tax credits or not; corporate profits are rebounding to pre-recession levels; and inflation is creeping closer to the central bank's preferred 2% target. The sterling fundamentals prompted the central bank last month to ditch its conditional commitment to keep its policy rate at a record low 0.25% until July, leading traders to price in a nearly 100% chance of a rate hike on June 1.
That was until sovereign debt worries exploded in Europe, once Greece formally asked for international help days after the last Bank of Canada rate decision. That sparked an across-the-board retreat in global equity markets, down 9.3% since the beginning of May, as traders sold stocks and poured into risk-averse U.S. treasuries and other government securities on fears that another credit crunch was at hand. Mr. Carney is likely aware of this better than most, given his capital markets background from Goldman Sachs.
The most worrying sign on Mr. Carney's radar screen might be the small but steady increases in the cost of borrowing among banks, a signal European lenders are finding it tough to access cash from their peers on concern over how much Greek, Portuguese and Spanish debt they hold.
In the end, the consensus is Mr. Carney is leaning toward a rate hike - a modest one, though, of 25 basis points. The thinking is, an ounce of prevention now is worth a pound of cure later.
"We can't look at things in a vacuum, because there are so many other factors besides Europe's issues" says Jonathan Basile, an economist with Credit Suisse in New York who closely watches Canadian markets. "The truth is the macroeconomic evidence is outweighing the financial risks right now."
The last time the Bank of Canada raised its benchmark rate was in July 2007, by 25 basis points to 4.5%. At the time, former governor David Dodge said the economy was operating above its production potential, and inflation was likely to stay above its 2% inflation target for longer than forecast.
Little did Mr. Dodge know that the U.S. subprime crisis would morph into the worst financial crisis since the Great Depression, roiling markets and economies around the world. This is why Europe's recent fiscal woes have triggered a case of nerves, and might prompt Mr. Carney to rethink any rate move.
"The Bank of Canada wants to raise rates, but it doesn't have a crystal ball," CIBC World Markets said in a note to clients. "It can't be certain that the recent financial market downturn isn't going to morph into something more severe that would make a rate hike look out of place."
There's another school of thought, though, that suggests markets have overreacted to a regional problem. In this context, it is key to remember the Bank of Canada didn't expect the eurozone to contribute much to global growth, envisaging only 1.2% expansion this year and 1.6% in 2011.
"The European picture will calm down and people will realize it is not as dramatic as being played out," says Carlos Leitao, chief economist at Laurentian Bank Securities.
Yes, he acknowledges, the debt-ridden southern European economies have tough years ahead. But other countries, led by Germany and France, are going to capitalize on the lower euro and boost their exports to emerging economies and North America, which will help offset the drag from the so-called Club Med nations.
Besides Europe, Mr. Carney has other factors to consider.
Canada's sovereign debt levels are indeed much better than the industrialized world, as our politicians like to remind us. But the amount of debt held by households, measured as a percentage of disposable income, stood at a historical high of 146% - of which 98% is mortgage related - at the end of 2009, rating agency DBRS estimates. That would put Canadian households ahead of the United States but behind Britain on this measure. A rate hike would signal it might be time to live more modestly and refrain from too much debt-financed consumption (which helped fuel those nasty asset bubbles that central banks may want to pay more attention to in the aftermath of the subprime debacle).
Mr. Carney's other challenge is to explain why, and what's ahead. He has come off a period where he provided extraordinary guidance to markets. Don't expect similar language from the governor.
If anything, Mr. Marion warns the central bank should refrain from using the type of guidance the U.S. Federal Reserve deployed in 2004, when it signalled a period of "moderate" rate hikes were in the offing.
In retrospect, the Fed's use of the word moderate "encouraged more financial excesses," leading to the subprime bust, Mr. Marion says. "Carney doesn't have to be brusque about it. He has the luxury to start slowly, and leave his options open," from pausing should Europe deteriorate to hiking aggressively, by 50 basis points, if conditions warrant.
Mr. Carney reminded us recently that "nothing is pre-ordained" at the Bank of Canada. He's likely to drive home that point on Tuesday, rate hike or not.
Read more: http://www.financialpost.com/news-sectors/story.html?id=3084621#ixzz0pVYuP0cD
Monday, May 31, 2010
Financial Update For May 28th, 2010
• TSX +205.22 higher for a second straight session as commodity-linked stocks surged after China soothed investor worries by saying Europe was a key investment market.
• DOW +284.54 back over 10,000 to 10,259
• Dollar +1.66c to 95.24cUS as concern eased that Europe’s debt turmoil will worsen
• Oil +$3.04 to $74.55US per barrel.
• Gold -$1.50 to $1,211.90 USD per ounce
• DOW +284.54 back over 10,000 to 10,259
• Dollar +1.66c to 95.24cUS as concern eased that Europe’s debt turmoil will worsen
• Oil +$3.04 to $74.55US per barrel.
• Gold -$1.50 to $1,211.90 USD per ounce
Wednesday, May 26, 2010
Financial Update For May 26, 2010
• TSX -3.27 only slightly lower after a sharp fall early in the day on worries that Europe's banking problems could derail global economic recovery
• DOW -22.82 .
• Dollar -.94c to 93.46cUS
• Oil -$1.46 to $68.75US per barrel.
• Gold +$4.00 to $1,197.80 USD per ounce as bullion prices climbed on safe-haven buying
Loonie's plunge signals long-term risk for Canadian and global economies
By Julian Beltrame, The Canadian Press
OTTAWA - The Canadian dollar plunged to its lowest level in eight months before recovering Tuesday, sending a clear signal that Europe's debt crisis has the potential to reach across the Atlantic and impact Canada's mending economy.
The loonie has lost about eight per cent of its value over the last month in reaction to fears in global equity and financial markets about the lasting imprint of government debt, and now a new risk — the threat of war on the Korean peninsula.
Over the weekend, the Bank of Spain had to bail out Cajasur — the second savings bank in that country to receive public money since March 2009. On Monday, four other Spanish savings banks announced plans to merge amid concerns over solvency in the sector.
Tension in Asia has also risen since last week after North Korea was accused of the sinking in March of a South Korean warship. Seoul has called for sanctions against the North.
The Canadian dollar closed down 0.94 of a cent at 93.46 cents US on Tuesday after bouncing off a low of 92.18 cents US earlier in the day.
The loonie is not alone in seeing its value eroded. Other commodity currencies have also taken a hit in the flight to dependable and liquid U.S. Treasury bills.
The short-term impact on the Canadian economy of frightened financial markets and a loonie closer to 90 cents than parity, ironically, may be mostly positive.
A weaker dollar will give a much-needed boost to manufacturers and exporters who prosper whenever they can sell their products abroad with a currency discount.
And the unsettling of financial markets has caused real interest rates to soften for mortgages and other loans. Many Canadian banks have dropped posted rates on five-year mortgages to below six per cent.
As a result, prospects that Bank of Canada governor Mark Carney will start hiking rates next Tuesday have gone from a virtual sure thing a month ago to a coin-flip today.
Export Development Canada's chief economist, Peter Hall, welcomed the fact that the loonie's wings have been clipped, saying that a dollar at par had the potential to take two or three points off economic growth next year — the equivalent of about $30 billion to $45 billion in output.
But the longer term implications may be that Canada's recovery won't go as smoothly as many had hoped. The loonie is acting as a proxy for the global economy: when the Canadian dollar is down, it means so are prospects for global expansion, say economists.
"Everything and anything that happens in the world affects Canada," said TD Bank chief economist Don Drummond, noting Canada's dependence on trade and on the prices of commodities it sells to the rest of the world.
The longer term outlook is that many governments, not just the poor cousins of Europe, will soon need to deal with debt burdens that cannot be sustained, and the ensuing clampdown on spending will stall the recovery.
Several economists, including David Rosenberg of Gluskin and Sheff, said the risk of a second downturn in key economies, including the United States as Washington withdraws stimulus spending, has become very real. Much like in 2008-09, Canada would become collateral damage, they said.
"For a small, open (and) commodity-sensitive economy whose entire recession in 2009 was imported from abroad and south of the border, the answer is yes," Rosenberg said when asked whether a second dip is possible.
That still remains a minority view, although the TD's Drummond puts the risk at about 20 per cent.
The key question is whether the European crisis is an overblown temporary crisis, or the precursor of government debt woes in the United Kingdom, the United States and other larger economies.
Scotiabank portfolio manager Andrew Pyle said he believes the fears over Europe will blow over in a matter of weeks, which will cause both oil prices and the loonie to recover to previous levels.
"I think people will be surprised to see how quickly that will happen. I wouldn't be surprised to see us back to parity in July," he said.
But it's the longer-term prospects that most worries Drummond. He says the perception that the situation will stabilize if the bailout of Greece and other countries works, or that things will implode if the bailout doesn't work, is simplistic.
"Those countries (with large debts) aren't getting out of this any time soon . . . easy bailout or not," he said.
http://ca.news.finance.yahoo.com/s/25052010/2/biz-finance-loonie-s-plunge-signals-long-term-risk-canadian.html
Transmitted by CNW Group
Ontario's housing market continues to sizzle: RBC Economics
TORONTO, May 25 /CNW/ - Ontario's hot housing market is showing few signs of letting up, causing housing affordability measures and property values to reach record highs in many parts of the province during the first quarter of 2010, according to the latest housing report released today by RBC Economics Research.
"Despite an increased supply of homes on the market, prices continue to rise which has undermined affordability," said Robert Hogue, senior economist, RBC. "While still well below peak levels, most of the housing affordability measures now stand above their long-term average, suggesting that more and more buyers are being priced out of the Ontario market."
The report found that housing activity in Ontario remained in top gear in the early part of the year. The RBC Housing Affordability measure for Ontario, which captures the province's proportion of pre-tax household income needed to service the costs of owning a home, rose across all four housing classes in the first quarter of 2010.
Affordability of the detached bungalow benchmark edged up to 39.6 per cent (up 0.4 of a percentage point over the last quarter), the standard townhouse to 32.7 per cent (up 0.4 of a percentage point), the standard condo to 27.8 per cent (up 0.4 of a percentage point) and the standard two-storey home to 45.4 per cent (rising 0.2 of a percentage point).
With the clock ticking toward the implementation of the HST on July 1, 2010, which will increase the transaction costs associated with a home purchase, both the demand for and supply of housing units in the province are likely being boosted by the rush of buyers and sellers to beat the tax.
The Toronto market reached new heights as strong demand catapulted sales of existing homes and property values to record highs in late 2009 and the early part of 2010. Affordability generally continued to weaken in Toronto in the first quarter, with RBC's measures creeping up between 0.3 and 0.6 percentage points for three of the four housing categories (condominiums were the only exception).
"While previously undecided sellers finally joined the fray in recent months, they continue to be outnumbered by buyers with bidding wars and quick sales still common," added Hogue. "All Toronto housing affordability measures now exceed their long-term average, suggesting that the market's dizzying flight could soon run into some turbulence."
The Ottawa-area market continued to chart a record-breaking path in the first few months of 2010, driven higher by motivated buyers. This strong demand added upward pressure on pricing, accelerating the pace of increases relative to the subdued gains recorded during the second half of 2009, although more homes were put up for sale. The higher prices eroded affordability in the area in the first quarter, with the RBC measures rising between 0.3 and 1.0 percentage points, reversing most of the surprising improvement in the fourth quarter.
"Although demand momentum is likely to remain brisk in the very near term, the historically-elevated costs of homeownership in the Ottawa area could well become a factor deterring buyers later this year," noted Hogue.
RBC's Housing Affordability measure for a detached bungalow in Canada's largest cities is as follows: Vancouver 73.4 per cent (up 4.8 percentage points over the last quarter), Toronto 49.1 per cent (up 0.4 of a percentage point), Ottawa 40.3 per cent (up 0.3 of a percentage point), Montreal 39.7 per cent (up 0.9 of a percentage point), Calgary 36.5 per cent (down 0.3 of a percentage point) and Edmonton 32.0 (down 0.5 of a percentage point).
The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Toronto and Ottawa. For these cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.
The RBC Housing Affordability measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.
Highlights from across Canada:
- British Columbia: Homeownership became even more expensive in B.C.,
as strong home price momentum continued in the first quarter. Housing
affordability measures have now returned close to the all-time highs
reached in early-2008. This trend represents a risk that could weigh
heavily on the province's housing market in the near term.
- Alberta: Affordability measures eased in the first quarter, as
Alberta was the only province to show a decline in the costs
associated with owning a home. Housing price increases in the
province were fairly modest over the past year, which has kept home
ownership relatively affordable. RBC affordability measures are at or
below the long-term averages.
- Saskatchewan: Housing prices picked up in the province in early 2010,
causing home affordability measures to rise significantly in the
first quarter. This is a change from previous quarters, which showed
an improvement in affordability. Despite this increase, affordability
measures still remain well below the all-time peak levels reached in
early-2008.
- Manitoba: Prices for most housing types surged ahead in the first
quarter of 2010, pushing affordability measures above the long-term
average for the province despite a slower pace of resale activity.
Affordability in the province has reached a point where an additional
decline in home affordability may temper housing demand.
- Quebec: Quebec's housing market rally continued in the first quarter
of the year, with record-levels of buying activity and rising
property values. This escalation in home prices, while more moderate
than in the previous two quarters, weakened affordability in the
province. All affordability measures now exceed their long-term
average, which may soon slow housing demand in the province.
- Atlantic Canada: Resale activity on the East Coast remained solid,
with an increase in sales met by a rise in the supply of available
homes. These broadly balanced conditions have limited the pace of
price increases in the region. Overall housing affordability in
Atlantic Canada continues to be among the most attractive in the
country, with measures still below long-term averages.
The full RBC Housing Affordability report is available online, at www.rbc.com/economics/market/pdf/house.pdf.
• DOW -22.82 .
• Dollar -.94c to 93.46cUS
• Oil -$1.46 to $68.75US per barrel.
• Gold +$4.00 to $1,197.80 USD per ounce as bullion prices climbed on safe-haven buying
Loonie's plunge signals long-term risk for Canadian and global economies
By Julian Beltrame, The Canadian Press
OTTAWA - The Canadian dollar plunged to its lowest level in eight months before recovering Tuesday, sending a clear signal that Europe's debt crisis has the potential to reach across the Atlantic and impact Canada's mending economy.
The loonie has lost about eight per cent of its value over the last month in reaction to fears in global equity and financial markets about the lasting imprint of government debt, and now a new risk — the threat of war on the Korean peninsula.
Over the weekend, the Bank of Spain had to bail out Cajasur — the second savings bank in that country to receive public money since March 2009. On Monday, four other Spanish savings banks announced plans to merge amid concerns over solvency in the sector.
Tension in Asia has also risen since last week after North Korea was accused of the sinking in March of a South Korean warship. Seoul has called for sanctions against the North.
The Canadian dollar closed down 0.94 of a cent at 93.46 cents US on Tuesday after bouncing off a low of 92.18 cents US earlier in the day.
The loonie is not alone in seeing its value eroded. Other commodity currencies have also taken a hit in the flight to dependable and liquid U.S. Treasury bills.
The short-term impact on the Canadian economy of frightened financial markets and a loonie closer to 90 cents than parity, ironically, may be mostly positive.
A weaker dollar will give a much-needed boost to manufacturers and exporters who prosper whenever they can sell their products abroad with a currency discount.
And the unsettling of financial markets has caused real interest rates to soften for mortgages and other loans. Many Canadian banks have dropped posted rates on five-year mortgages to below six per cent.
As a result, prospects that Bank of Canada governor Mark Carney will start hiking rates next Tuesday have gone from a virtual sure thing a month ago to a coin-flip today.
Export Development Canada's chief economist, Peter Hall, welcomed the fact that the loonie's wings have been clipped, saying that a dollar at par had the potential to take two or three points off economic growth next year — the equivalent of about $30 billion to $45 billion in output.
But the longer term implications may be that Canada's recovery won't go as smoothly as many had hoped. The loonie is acting as a proxy for the global economy: when the Canadian dollar is down, it means so are prospects for global expansion, say economists.
"Everything and anything that happens in the world affects Canada," said TD Bank chief economist Don Drummond, noting Canada's dependence on trade and on the prices of commodities it sells to the rest of the world.
The longer term outlook is that many governments, not just the poor cousins of Europe, will soon need to deal with debt burdens that cannot be sustained, and the ensuing clampdown on spending will stall the recovery.
Several economists, including David Rosenberg of Gluskin and Sheff, said the risk of a second downturn in key economies, including the United States as Washington withdraws stimulus spending, has become very real. Much like in 2008-09, Canada would become collateral damage, they said.
"For a small, open (and) commodity-sensitive economy whose entire recession in 2009 was imported from abroad and south of the border, the answer is yes," Rosenberg said when asked whether a second dip is possible.
That still remains a minority view, although the TD's Drummond puts the risk at about 20 per cent.
The key question is whether the European crisis is an overblown temporary crisis, or the precursor of government debt woes in the United Kingdom, the United States and other larger economies.
Scotiabank portfolio manager Andrew Pyle said he believes the fears over Europe will blow over in a matter of weeks, which will cause both oil prices and the loonie to recover to previous levels.
"I think people will be surprised to see how quickly that will happen. I wouldn't be surprised to see us back to parity in July," he said.
But it's the longer-term prospects that most worries Drummond. He says the perception that the situation will stabilize if the bailout of Greece and other countries works, or that things will implode if the bailout doesn't work, is simplistic.
"Those countries (with large debts) aren't getting out of this any time soon . . . easy bailout or not," he said.
http://ca.news.finance.yahoo.com/s/25052010/2/biz-finance-loonie-s-plunge-signals-long-term-risk-canadian.html
Transmitted by CNW Group
Ontario's housing market continues to sizzle: RBC Economics
TORONTO, May 25 /CNW/ - Ontario's hot housing market is showing few signs of letting up, causing housing affordability measures and property values to reach record highs in many parts of the province during the first quarter of 2010, according to the latest housing report released today by RBC Economics Research.
"Despite an increased supply of homes on the market, prices continue to rise which has undermined affordability," said Robert Hogue, senior economist, RBC. "While still well below peak levels, most of the housing affordability measures now stand above their long-term average, suggesting that more and more buyers are being priced out of the Ontario market."
The report found that housing activity in Ontario remained in top gear in the early part of the year. The RBC Housing Affordability measure for Ontario, which captures the province's proportion of pre-tax household income needed to service the costs of owning a home, rose across all four housing classes in the first quarter of 2010.
Affordability of the detached bungalow benchmark edged up to 39.6 per cent (up 0.4 of a percentage point over the last quarter), the standard townhouse to 32.7 per cent (up 0.4 of a percentage point), the standard condo to 27.8 per cent (up 0.4 of a percentage point) and the standard two-storey home to 45.4 per cent (rising 0.2 of a percentage point).
With the clock ticking toward the implementation of the HST on July 1, 2010, which will increase the transaction costs associated with a home purchase, both the demand for and supply of housing units in the province are likely being boosted by the rush of buyers and sellers to beat the tax.
The Toronto market reached new heights as strong demand catapulted sales of existing homes and property values to record highs in late 2009 and the early part of 2010. Affordability generally continued to weaken in Toronto in the first quarter, with RBC's measures creeping up between 0.3 and 0.6 percentage points for three of the four housing categories (condominiums were the only exception).
"While previously undecided sellers finally joined the fray in recent months, they continue to be outnumbered by buyers with bidding wars and quick sales still common," added Hogue. "All Toronto housing affordability measures now exceed their long-term average, suggesting that the market's dizzying flight could soon run into some turbulence."
The Ottawa-area market continued to chart a record-breaking path in the first few months of 2010, driven higher by motivated buyers. This strong demand added upward pressure on pricing, accelerating the pace of increases relative to the subdued gains recorded during the second half of 2009, although more homes were put up for sale. The higher prices eroded affordability in the area in the first quarter, with the RBC measures rising between 0.3 and 1.0 percentage points, reversing most of the surprising improvement in the fourth quarter.
"Although demand momentum is likely to remain brisk in the very near term, the historically-elevated costs of homeownership in the Ottawa area could well become a factor deterring buyers later this year," noted Hogue.
RBC's Housing Affordability measure for a detached bungalow in Canada's largest cities is as follows: Vancouver 73.4 per cent (up 4.8 percentage points over the last quarter), Toronto 49.1 per cent (up 0.4 of a percentage point), Ottawa 40.3 per cent (up 0.3 of a percentage point), Montreal 39.7 per cent (up 0.9 of a percentage point), Calgary 36.5 per cent (down 0.3 of a percentage point) and Edmonton 32.0 (down 0.5 of a percentage point).
The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Toronto and Ottawa. For these cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.
The RBC Housing Affordability measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.
Highlights from across Canada:
- British Columbia: Homeownership became even more expensive in B.C.,
as strong home price momentum continued in the first quarter. Housing
affordability measures have now returned close to the all-time highs
reached in early-2008. This trend represents a risk that could weigh
heavily on the province's housing market in the near term.
- Alberta: Affordability measures eased in the first quarter, as
Alberta was the only province to show a decline in the costs
associated with owning a home. Housing price increases in the
province were fairly modest over the past year, which has kept home
ownership relatively affordable. RBC affordability measures are at or
below the long-term averages.
- Saskatchewan: Housing prices picked up in the province in early 2010,
causing home affordability measures to rise significantly in the
first quarter. This is a change from previous quarters, which showed
an improvement in affordability. Despite this increase, affordability
measures still remain well below the all-time peak levels reached in
early-2008.
- Manitoba: Prices for most housing types surged ahead in the first
quarter of 2010, pushing affordability measures above the long-term
average for the province despite a slower pace of resale activity.
Affordability in the province has reached a point where an additional
decline in home affordability may temper housing demand.
- Quebec: Quebec's housing market rally continued in the first quarter
of the year, with record-levels of buying activity and rising
property values. This escalation in home prices, while more moderate
than in the previous two quarters, weakened affordability in the
province. All affordability measures now exceed their long-term
average, which may soon slow housing demand in the province.
- Atlantic Canada: Resale activity on the East Coast remained solid,
with an increase in sales met by a rise in the supply of available
homes. These broadly balanced conditions have limited the pace of
price increases in the region. Overall housing affordability in
Atlantic Canada continues to be among the most attractive in the
country, with measures still below long-term averages.
The full RBC Housing Affordability report is available online, at www.rbc.com/economics/market/pdf/house.pdf.
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