The Patz McMillan Team

While eastern Canada's real estate market may be cooling off, the booming Western Provinces are more than making up for it. The Canadian Real Estate Association (CREA) reports that house prices were up 12.9 per cent in April compared to last year. The average home sold in Canada through the MLS system cost $280,740 in April.

After prices increased by 10.2 per cent in 2005, CREA is predicting a further 6.1 per cent increase this year and another 4.7 per cent hike in 2007. Meanwhile, Canada Mortgage and Housing Corp (CMHC) says prices will go up 11.2 this year, recording their strongest growth in 17 years. It says more balanced conditions next year will slow prices to an increase of 4.8 per cent.

RBC Economics, which has compiled a Housing Affordability Index since 1985, says rising interest rates and higher prices means the cost of home ownership rose at a faster pace than incomes for the last two quarters. British Columbia is the least affordable province. The home ownership costs of a detached bungalow in Vancouver was 64.4 per cent, which means that mortgage payments, utility costs and property taxes would take up 64.4 per cent of a typical household's monthly pre-tax income. In Toronto, the index was 41.7 per cent; in Montreal, 34.9 per cent; and in Calgary, 32.7 per cent.

CMHC recently published a study that used average hourly earnings data for different centres across Canada, and calculated the number of hours a person would need to work in order to bring the mortgage payment on an average house down to 30 per cent of monthly income. The 30 per cent benchmark is generally recommended to determine if you can afford to buy a house, but the CMHC study included only mortgage payments and not utilities or taxes.

It found that to own a house in Vancouver, with mortgage payments at 30 per cent of income, someone would have to work 331 hours a month. There are only 162.5 hours available in a typical work month, says CMHC.

Toronto required 257 hours, Calgary 186, Montreal 168, St. John's 125, and Saguenay, Que. 82.

The same study was conducted to see how many work hours would be required to pay rent. Toronto was the most, at 157 hours, followed by Vancouver at 153 and Halifax at 129. In Thunder Bay, Ont., fewer hours were required to own a house (97) than to rent (108).

So with prices rising and affordability deteriorating, how is it that housing sales will set a new all-time record this year, according to CREA forecasts?

Even though the Bank of Canada has increased interest rates seven times since last September, mortgage interest rates are still near historically low levels.

Economist David Tulk at TD Economics says that although variable-rate mortgages are impacted by the prime lending rate, fixed-rate mortgages are tied more closely to the bond market, and they have not increased as much as the Bank of Canada rate. He says it's the level of the rate, which is still low, rather than recent changes that impacts the real estate market the most. Most economists believe the central bank's rate will not rise again for some months.

Personal income in Canada strengthened steadily throughout last year, says CMHC. The unemployment rate set a 32-year low in March and a record share of Canadians are employed, says the federal housing agency. That creates high levels of consumer confidence and strong demand for housing.

Immigration into the country is also set to exceed the target range for new permanent residents this year and in 2007, says CMHC. Newly arrived immigrants generally settle into rental housing at first, and then many move to home ownership.

More Canadians are also moving into less expensive housing as the boom in multi-unit buildings continues. "The apartment/condominium market is witnessing particularly explosive growth, having accounted for fully two-thirds of multi-family starts last year," says Adrienne Warren of Scotiabank Group. "The number of apartment starts in Canada has increased at a 15 per cent average annual rate since 1998 -- three times the growth in the stock of single-detached homes, semi-detached homes or townhouses. Not since the early 1970s have we seen such an extended boom in apartment construction."

Warren says that "for many young renters contemplating home ownership, condominiums and other multi-unit developments represent an affordable entry point, and perhaps the only viable option."


Written by Jim Adair