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Home ownership costs rise: RBC study

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1 Home ownership costs rise: RBC study on Sat May 21, 2011 8:12 pm

TORONTO (Reuters) – The cost of owning a home rose in the first quarter as home prices were up in most markets, reversing two quarters of easier conditions, a report by Royal Bank of Canada said on Friday.

The bank's quarterly Housing Trends and Affordability Index found that the cost of housing rose nationally across all the housing types it tracks.

The affordability index measures the proportion of pretax household income needed to service the cost of owning a home. The higher the measure, the more costly it is.

"Despite the latest erosion in affordability, provincial levels generally continue to stand near their long-term averages, suggesting that owning a home remains affordable or, at worst, slightly unaffordable across Canada -- with Vancouver being a notable exception," said the report's author, senior bank economist Robert Hogue.

For a detached bungalow, the national measure rose 0.7 of a percentage point to 40.5 percent of pretax income. The costs of owning a standard condominium and a standard two-storey home both edged up 0.2 of a percentage point, to 27.7 percent and 46.2 percent, respectively.

Canada's largest cities all faced higher costs, particularly Vancouver, British Columbia, where the costs of home ownership neared record highs. Increases in British Columbia were the most significant of any province.

"The lack of affordability (in British Columbia) will continue to weigh on local demand and could potentially cause painful market disruptions in the period ahead," Hogue said.

Rising interest rates will hurt affordability across the country in the months ahead, he said, but growth in household incomes will likely soften the blow.

In the previous two quarters, declining mortgage rates had helped make housing easier to afford. But mortgage rates had a neutral impact in the first quarter, the report said.

Several major Canadian banks cut their five-year residential fixed mortgage rates earlier this week by 0.10 percent to 5.59 percent.

(Reporting by Ka Yan Ng; editing by Peter Galloway)

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