But Homeownership Less Affordable

Ontario's housing market has recovered its past strength with rising home prices contributing to a decline in affordability for the first time since early 2008, according to the latest third quarter housing report released by RBC Economics Research.

"Ontario's housing market has experienced a remarkable turnaround with price levels returning to and, in some cases, surpassing earlier peaks," said Robert Hogue, senior economist, RBC. "The downside is that rising property values and a modest increase in mortgage rates have negatively affected affordability, after significant improvement over the past year."

Hogue noted that housing affordability improved considerably throughout most of 2008 and the first half of 2009, which has caused many home buyers in Ontario to jump into the market and drive up property values. The RBC Housing Affordability measure for Ontario captures the proportion of pre-tax household income needed to service the costs of owning a home.

During the third quarter of 2009, the RBC Affordability measure in Ontario rose across all housing types (the higher the measure, the more expensive it is to afford a home). Affordability of the benchmark detached bungalow in Ontario moved up by one point to 39.4 per cent, the standard townhouse rose by 0.6 percentage points to 32.2 per cent, the standard condo climbed by 0.5 per cent up to 27.4 per cent and the standard two-storey home increased by 1.0 percentage points to 45.2 per cent.

In the Toronto area, full confidence in the housing market and a renewed sense of urgency are now fuelling buyers to purchase homes. This has significantly bolstered resale activity, tightened inventories of homes offered for sale and pushed prices higher to near-record levels. Affordability levels have suffered as a result, with RBC's affordability measures for the Greater Toronto area (GTA) rising between 1.0 and 1.9 per cent in the third quarter.

"Affordability levels in the GTA still remain close to long-term averages, suggesting that this real estate rally is likely to continue in the near-term," added Hogue.

The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Kitchener, London, St. Catharines, Thunder Bay, and Windsor.

RBC's Affordability measure for a detached bungalow for Canada's largest cities is as follows: Vancouver 66.8 per cent, Toronto 48.6 per cent, Ottawa 39.2 per cent, Montreal 37.5 per cent and Calgary 36.7 per cent.

The Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an Affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.

Courtesy of RBC - For full report click HERE