Friday, February 25, 2011
RBC Affordability Report, housing bust recognized in Alberta
The new affordability report from RBC is out.
Housing affordability improved modestly for the second consecutive quarter in the fourth quarter of 2010. Homeownership costs were lowered by small decreases in the five-year fixed mortgage rate (posted) during October and November of 2010 amid minimal home-price appreciation (even outright declines in certain local markets).
The Saskatchewan housing market finished 2010 on an enviable note. Home prices, for the most part, rose slightly in the fourth quarter, yet housing affordability improved for the second consecutive time. The provincial home resale market gained back solid forward momentum in the second half of last year (notwithstanding some softening in the final months), which contributed to re-establishing a stronger balance between demand and supply. Generally, the price increases in the fourth quarter more than reversed declines in the previous period but were too small to negate the beneficial effect of lower mortgage rates on affordability. The RBC Measures fell between 0.6 and 1.1 percentage points in the quarter, although the levels continue to be modestly above historical averages in the province. In our view, the Saskatchewan market will take its current affordability position in stride as a rebound in provincial economic growth, and, especially, continued strong migration inflows will support housing demand this year.
The measures for the affordability report are based on a 25% down payment, a 25-year mortgage loan at a five-year fixed rate.
With the majority of our population growth not having much wealth, it is fair to say they guys are not putting 25% down. This is what it looks like to put 5% down on an average bungalow with an average income in Saskatchewan. About 50% of income would go towards feeding the house.
Robert Hogue, senior economist with RBC and author of the report, said a combination of a housing bust, slowing economy and population outflows starting as far back as 2007 has created a real estate market that has been “sideways at best” for the past few years
Of course, at the end of the article, they talk about the market possibly skyrocketing.
Whatever measure is used, there is no denying that Alberta had a housing bubble with a single family house in Edmonton down 16% from the peak and Calgary also down 10% from the peak, better than the 18% and 18% drops experienced from the high of 2007 and the low of 2009.