Housing across Canada became more affordable in the second quarter of this year because mortgage rates dropped, according to a report from RBC.
Even with prices moving higher, homes became more affordable in nearly every market across Canada, according to RBC’s Housing Trends and Affordability Report.
The least affordable markets were Toronto and Vancouver, where hot competition for properties kept home ownership out of reach for most buyers, despite a marginal improvement in the quarter. Vancouver is the least affordable market with sky-high prices, especially for single family homes.
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Most other cities saw housing affordability remain around historic averages, RBC said.
But new buyers in the quarter were treated to lower fixed-rate mortgages than they could have found a year ago, as banks reacted to falling bond yields.
That’s not a situation that will remain, RBC warns. Long-term rates are expected to move higher later this year in anticipation of the Bank of Canada's move to tighten policy in 2015.
Rising rates would erode housing affordability across Canada and reduce demand, said Craig Wright, senior vice-president and chief economist. However he expects a slow rise in rates will lead to soft landing for housing.
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"We remain of the view that any rise rates will be gradual and unlikely to unhinge either overall affordability levels or the market — we expect a cooling in activity, not a crash," Wright said in a statement.
Wright points to the rebound in sales activity in May and June that resulted in a 9.4 per cent seasonally adjusted advance in the volume of sales for the quarter. It was the strongest quarterly gain in nearly four years.
"We had anticipated a rebound in activity from earlier this year when the harsher than normal winter weather took hold, but the biggest drop in fixed mortgage rates in almost four years and resulting improvement in affordability also gave the Canadian housing market a boost of extra energy," he said.
New listings also surged by eight per cent.
The RBC Housing Affordability measure, which has been compiled since 1985, is based on the calculated costs of owning a detached bungalow at market value, but also is used to measure the cost of condos and two-storey homes.