Mortgage brokers may have to work harder in the next few months to protect volumes, with a new RBC report pointing to the continuing erosion of housing affordability.
“Going forward, we anticipate that the latest mortgage insurance rule changes and prospects for further erosion in affordability will restrain homebuyer demand in Canada,” said Craig Write, senior vice-president and chief economist at RBC. “Assuming the European crisis remains constrained and fiscal challenges in the U.S. are addressed, we expect the Bank of Canada to start normalizing interest rates in early next year.”
The bank’s latest Housing Trends and Affordability Report released today by RBC notes that exceptionally low interest have been the most important factor in protecting affordability. Should interest rates begin to rise, this could put upward pressure on housing costs, the bank said.
The housing affordability measure captures the proportion of pre-tax household income that would be needed to cover the cost of a specified category of home at current market value. For the second quarter of 2012, the measure at the national level edged higher for detached bungalows and two storey homes by 0.2 and 0.6 percentage points to 43.4 per cent and 49.4 per cent respectively. This represents deterioration in affordability.
Across the country, housing was most affordable in Alberta, because of significant drops in the price of natural gas, according to the report. RBC said measures eased between 0.3 and 0.6 percentage points, to levels well below their long run averages.