November 2011

This article appeared on Realty Biz News on November 28th, 2011 and was written by Travis J. Hampton.

Homes in Canada became a bit more affordable in the third quarter of 2011, according to a new report by RBC. Most parts of Canada saw a decrease in housing costs, with Vancouver being the one exception.

The index RBC uses calculates the affordability of housing at a given time. The lower the index, the more affordable homes are expected to be. In the third quarter of 2011, the amount of pre-tax household income a family would need to pay for home ownership went down across much of Canada. In Vancouver, however, home prices continued to be extremely high in wealthier neighborhoods.

The increase in affordability can be attributed to many factors, including the economic crisis in Europe, which has kept interest rates low. Experts at RBC expect prices to level off sometime next year, and those few places where prices increased (Toronto, Montreal, and Ottawa) will also start to see some stability in their home affordability.

“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 affordability index takes into account a number of factors beyond just the sticker price. It includes actual mortgage payments, utilities, and property taxes. It then formulates an affordability reading percentage, which indicates the amount of pre-tax monthly household it would take to cover those home ownership expenses. While Toronto and Montreal have an index of 52.1% and 40.9% respectively, Vancouver’s index is 90.6%.

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This article appeared on the Globe and Mail on November 24th, 2011 and was written by Michael Babad.

A new study of global housing markets by The Economist warns that markets in Canada and some other countries still appear “uncomfortably overvalued.” Indeed, the magazine calls it downright frothy in its latest update of house prices indicators.

Overall, the report shows prices falling in eight of 16 countries studied in terms of a price-to-income ratio, which measures affordability, and a price-to-rent ratio.

By averaging the two readings, The Economist warns that prices are overvalued by 25 per cent or more in Canada, Australia, Belgium, France, New Zealand, Britain, the Netherlands, Sweden and the ever-unfortunate Spain.

Here’s a really troubling bit: For Canada, Australia, Belgium and France, housing “looks more overvalued than it was in America at the peak of its bubble.”

The magazine notes that some economists dismiss its measures, citing the fact that lower interest rates – Canada is such an example – can justify fatter prices because they allow heftier mortgages. The magazine responds to that just as Bank of Canada Governor Mark Carney and others have: It will not always be thus, and rates will inevitably rise.

Here’s another warning, also along the lines of what we’ve been told for months now: “Australia, Britain, Canada, the Netherlands, New Zealand, Spain and Sweden all have even higher household-debt burdens in relation to income than America did at the peak of its bubble.”

Canadian housing markets have been cooling down, and many forecasters project a continued softening, though not a crash.

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