Ontarios Housing Affordability Steady, Despite Rise in Home Prices

Ontarios housing affordability remained fairly stable in the early part of 2011, and home prices and resale activity increased at a steady rate, according to the latest Housing Trends and Affordability Report by RBC Economics. Ontario's housing market has reached a cruising speed since the end of 2010 and seems to be on a sustainable path so far this year. The demand-supply equation has remained balanced for the most part, but has firmed just enough to give the sellers a slightly stronger hand," said Robert Hogue, senior economist, RBC. "The provincial market will likely face some headwinds in the coming months, however, as stricter mortgage lending rules and an expected rise in interest rates weigh on homebuyer demand." The RBC housing affordability index for Ontario, which captures the province's proportion of pre-tax household income needed to service the costs of owning a home, changed little at the start of 2011 and stands very close to long-term averages. The measure for the benchmark detached bungalow increased to 39.3 per cent (up 0.5 of a percentage point from the previous quarter) and the standard condominium raised a slim 0.1 of a percentage point to 27.5 per cent, while the standard two-storey home eased to 44.6 per cent (down 0.6 of a percentage point).

The RBC report notes that the Toronto-area housing market maintained its momentum in the first quarter, with home resale activity recovering much of the ground lost during its downswing last spring and summer. "Toronto"s strength earlier this year is likely in part a reflection of the changes in mortgage lending rules that took effect in March and April, which pulled activity forward that would have otherwise occurred later in the year. Consequently, some of this vigour could very well be reversed in the coming months," said Hogue. "Somewhat tense market conditions in the first quarter fuelled appreciation in property values and led to some erosion in affordability." Toronto-area affordability measures rose for detached bungalows and standard condominiums (up 0.8 and 0.1 of a percentage point, respectively) in the latest period, but eased for standard two-storey homes by 0.9 of a percentage point to 55.6 per cent.

(Article was published in OREA's June 2011 Issue of Queen's Park Plus)