Housing Affordabillity – RBC Economics

From Canadian Business Online on December 20th 2006:

Housing affordability down despite stable borrowing rates, says RBC EconomicsDecember 20, 2006 – 10:43 a.m.

TORONTO (CP) – Housing affordability diminished for the fourth straight quarter in Canada despite stable borrowing rates and a decline in utility costs but the cost to own a home will likely abate somewhat next year, RBC Economics said Wednesday.

House prices continued to climb across the country, the economics wing of Royal Bank (TSX:RY) said in releasing its quarterly Housing Affordability Index.

“Across Canada, housing affordability further eroded as rising house prices outpaced income growth in the third quarter of 2006,” assistant chief economist Derek Holt said in a release.

“However, affordability is likely to improve slightly next year as the lagged effects of fourth quarter mortgage rate declines, easing energy price pressures and a topping out of home price appreciation will have a positive impact for home buyers.”

The pace of the decline in housing affordability eased somewhat during the quarter almost everywhere except Alberta, though that province will likely see an improvement in affordability as well in 2007, Holt said.

According to the RBC index, which measures the proportion of pre-tax household income needed to service the costs of owning a home, condos remain the most affordable housing class, with an index of 28 per cent.

Standard townhouses were the next affordable class at 32 per cent, followed by a detached bungalow at 40.2 per cent. The standard two-storey home is still the least affordable housing type with an index reading of 45.8 per cent, the bank said. Both new home construction and resales are expected to soften in 2007 while the overall volume of home sales activity remains high and the majority of home equity gains seen in recent years should also be retained, the report said.

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