“Housing affordability levels are quite good in most parts of Canada and will pose little threat to overall housing demand,” said Craig Wright, senior vice president and chief economist. “The Vancouver area market continues to be a major exception, with sky-high property values in upscale neighbourhoods making it both extremely unaffordable and the most at risk of a downward correction.”

The uncertainty affecting the global economy, with Europe mired in a debt crisis, is helping to keep interest rates close to historic lows. Rates are unlikely to rise until the middle of next year and even then only gradually, RBC said.

The cost of owning a detached bungalow dropped in most major cities in the third quarter, with the exception of Toronto and Calgary, which ticked higher.

Although overall affordability improved slightly in the three months to September, housing costs in Toronto, Montreal and Ottawa are also in an “uncomfortable” range.

“We expect to see further slowing in the pace of home price increases next year, as housing demand levels out,” said Wright. “These factors will set the stage for a period of relative stability in affordability trends in Canada.”

According to the index, the higher the reading the less affordable it becomes to own a home.

For example, an affordability reading of 50% means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50% of a typical household’s monthly pre-tax income.

The index in Vancouver stands at 90.6%, Toronto 52.1% and Montreal 40.9%.

http://money.canoe.ca/money/business/canada/archives/2011/11/20111125-123132.html

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A new report from RBC Economics says the driving factor was low interest rates, which helped reduce fixed mortgage rates across the country.

As a result, the bank says it was more affordable for Canadians to own a standard condominium, two-storey home or detached bungalow in the third quarter, though not by much.

The following RBC statistics include the total mortgage, utility and property taxes incurred by Canadian homeowners:

Owning a condo cost 29 per cent of median pre-tax household income at the national level, a drop of 0.2 percentage points from the previous quarter.

A two-storey home also became cheaper to own, but still costing 48.8 per cent of household income. That was down by 0.6 percentage points.

Finally, a detached bungalow ate up 42.7 per cent of that same income, a decrease of 0.7 percentage points from the second quarter.

In terms of a regional picture, RBC says Vancouver remains the most expensive housing market in the country.

In a statement, RBC Chief Economist Craig Wright said the Vancouver-area has “sky-high property values in upscale neighbourhoods making it both extremely unaffordable and the most at risk of a downward correction.”

On the other hand, RBC says Alberta is among the most affordable provinces in which to buy a two-storey home, detached bungalow or condo.

RBC also says that the Manitoba market “showed some of the more significant improvement in affordability among the provinces in the third quarter.”

Daryl Harris, a Winnipeg-based mortgage professional with Verico One Link Mortgage and Financial, said he was surprised by the RBC report’s analysis of the Manitoba market.

“Affordability generally follows one of two things, either lower rates or a decrease in house prices and I have seen neither in our market,” Harris told CTVNews.ca in a telephone interview on Friday.

Looking ahead to 2012, RBC believes housing prices are unlikely to soar any time soon.

“We expect to see further slowing in the pace of home price increases next year, as housing demand levels out,” said Wright.

“These factors will set the stage for a period of relative stability in affordability trends in Canada.”

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CREA had earlier predicted that the national average home price in 2011 would fall by 1.3 per cent from last year to $326,000. This is contrary to what they have recently released that there will be 439,900 existing homes sold in 2011, down 1.6 per cent from 2010, but better than the nine per cent decline that CREA had forecast at the end of last year. Recent reports on building permits and housing starts are two indicators why the change in forecast has been made.

Canada Mortgage and Housing Corp. reported Tuesday that the pace of new-home construction in Canada increased slightly last month, rising to 170,400 units, up from 169,000 in December on a seasonally adjusted annual rate. That puts the country on a pace for about 10 per cent fewer housing starts than last year.

A moderation in housing starts is a sign that supply is contracting in line with reduced demand, which could avoid an unhealthy glut of available houses on the market if demand declines when interest rate hikes are announced.

CREA predicted Tuesday that some sales that would have been made later in the year will likely occur in the first quarter, as a result of the new rules. A previous change in mortgage rules last year contributed to extremely strong first-quarter demand as buyers sought to beat the deadline.

“This is expected to produce a milder version of the volatility in sales activity that we saw last year which resulted from additional transitory factors,” said CREA’s chief economist Gregory Klump.

Last year, sales were also pushed ahead to the first part of the year as buyers in two provinces — British Columbia and Ontario — rushed to avoid a switch to the harmonized sales tax on July 1.

Read more: http://www.cbc.ca/money/story/2011/02/08/crea-forecast-2011.html#ixzz1Djy9l7Fy
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One factor that can be attributed to the housing boom over the past decade is the government’s huge support on residential housing by offering a much larger subsidy. This is strengthen by some of the policies in the current tax system that shows favoritism towards homeowners over renters, said by John Dickie, president of the Canadian Federation of Apartment Association.

According to the group’s estimation, the government grants subsidy of $2,629 per household and only $395 per renter. Canada’s homeownerships have mounted progressively up to 70% households. There is a perception among politicians that homeowners vote more frequently than tenants and that homeownership is good and should be encouraged, said Mr. Dickie.

It differs in every city yet residential homeowners generally pay less property tax than landlords. In Ottawa, for instance, landlords deal with higher property tax—1.7% of the value of their home and 1% of the value for homeowners.

However, Craig Alexander, chief economist with TD Bank Financial Group sees no issue on this as homeownership has long been a goal of Western society.

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In other words, Canadian homeowners are unlikely to experience what U.S .have underwent in terms of the decline of their home value.

“The relationships between average price and income has recently been cited as portending a U.S.- style correction in Canadian home prices,” said Gregory Klump, chief economist for CREA.

Home prices tend to perform well in the market in accordance with periods of sharp growth periods of stability. By contrast, income generally follows an orderly upwards trend over time.

Winnipeg REALTORS® president Claude Davis said the Winnipeg market is more characterized by the term “slow but steady.” In addition, it is known to be one of the most affordable markets in Canada which is not prone to accelerated price increase unlike Calgary, Vancouver and Toronto.

“The Canadian housing market is now widely thought beat, or very near, the top of a cycle,” said Klump, “and the ratio of the home prices to incomes is currently high. This ratio will revert to its long-term average as it always does as part of a normal housing market cycle.

“History suggests, however, that it will not do so by means of a significant correction in home prices,” he added. “The more likely scenario is that home prices will stabilize, giving incomes chance to catch up again.”

Conservative lending practices in the mortgage industry combined with prudent borrowing and accelerated payments among Canadian mortgage holders have been seen throughout the recent housing market cycle.

Accelerated accumulation of home equity will provide options for the small proportion of homeowners who may face financial difficulty when their mortgage is renewed at a higher interest rate. Their trends are expected to help Canada avoid a U.S.-style housing crisis.

The unwinding of the housing boom in Canada will be more orderly, characterized by softening sales activity and stable prices, according to CREA.

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Harper said this latest cut will result in an additional $6 billion in tax relief for Canadian consumers in 2008.

But NDP Leader Jack Layton said the GST announcement and other Conservative tax cuts will do little to increase wealth in Canada. In an end-of-year interview, Layton noted that the tax cuts could widen the gap between rich and poor, while the average family could see higher property taxes, post-secondary education fees and other bills.

“Those with the highest salaries – the millionaires, the big banks, the (profitable) corporations… The ones that don’t need the help – are going to get the most help; the oil and gas companies in the tar sands, continuing to get subsidies as well as a big boost from the corporate tax cuts,” Layton said.

Patti Croft, chief economist with the investment firm Phillips, Hager and North, said anyone making big-ticket purchases will benefit from the consumption tax reduction. But, she said: “In general most economists would prefer a cut in income taxes. It’s a more efficient way to reduce the tax burden. By cutting the GST, hopefully it causes Canadians to spend more.”

Ottawa realtor Duane Leon, however, predicted that even though the cut could shave thousands of dollars off the price of a newly built home, there would be little impact on the real estate market. Many builders have already announced that price increases in the thousands of dollars for new construction that will take effect early in the new year, he said, adding this will offset any benefits to buyers from the GST reduction.

The only buyers who will see an actual one per cent price drop in the purchase price of a newly built home are those who bought in 2007 and take possession in 2008, said Leon, an agent with RE/MAX Metro-City Realty. GST is not charged on resales of existing properties.

The director of the Canadian Taxpayers Federation, however, defended this second trim in the GST, saying it will save the average household between $150 and $200 annually.

“While some have criticized cutting the GST, it is a broad-based tax cut that puts $5 billion back in the pockets of over-taxed Canadians,” John Williamson said in a statement. Noting that this is the second GST cut that the Tories have made since July 1, 2006, he added: “This is good news particularly since $10 billion in the pockets of Canadian consumers is preferable to Ottawa hoarding the cash.”

The president of the Canadian Federation of Independent Business agreed.

“The one percentage point cut puts over $5 billion dollars back into the national economy, at a time when sales are traditionally sluggish in many sectors,” said Catherine Swift.

“Our members’ No. 1 priority is tax reduction of all kinds,” she said. “They want to see more money left in Canadians’ pockets.”

The Goods and Services Tax was introduced by the Conservatives in 1992. All 10 premiers opposed the tax, lobby groups railed against it and one poll showed 80 per cent of Canadians objected

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