Housing affordability began slipping from the grip of many Canadians in the first quarter of 2011 following two back-to-back periods of improvement, RBC Economics Research said Friday.
Flat mortgage rates weren't enough to stave off the effects of rising home prices, the bank said, whereas drops in lending costs were the main source of improvement in affordability in the second half of 2010.
And brace for it: Things could get worse.
"We expect that the Bank of Canada will soon resume its campaign to normalize its interest rate policy, which will adversely impact housing affordability in Canada," said Robert Hogue, senior economist for RBC. "Continued growth in household incomes, however, will likely soften the blow."
Hogue said higher mortgage rates will lead to steady increases in home ownership costs, which will in turn flatten housing demand going forward.
The costs associated with owning a detached bungalow rose 0.7% to 40.5% of pre-tax household income while both the standard two-storey home and condominium measure rose by 0.2%, to 46.2% and to 27.7% respectively, in the first quarter.
That means the average Canadian family needs to bring in $74,100 a year to reasonably be able to pay for the average $338,700 bungalow. If you live in Vancouver, that jumps to $139,900 for a run-of-the-mill $736,000 home.
Affordability deteriorated most in Vancouver and in parts of Quebec.
Ontario, Alberta and Saskatchewan are experiencing ups and downs in ownership costs, depending on the housing type. Calgary is the cheapest major city in which to own a home in this country, relative to income.
"Despite the latest erosion in affordability, provincial levels generally continue to stand near their long-term averages, suggesting that owning a home remains affordable or, at worst, slightly unaffordable across Canada - with Vancouver being a notable exception," Hogue said.
The forecast comes on the heels of a RE/MAX report that found a growing number of Canadian millionaires and an influx of foreign investment are driving a boom in the luxury property sector.
Leading the pack was the greater Vancouver area, where sales of luxury properties priced at $2 million and above more than doubled in the first four months, compared with the same period last year.
Gains in the high-end market aren't pulling up prices for average homebuyers however, experts said.
Figures for April, released by the Canadian Real Estate Association, showed overall sales softened in the month.
By Stefania Moretti ,QMI Agency
First posted: Friday, May 20, 2011 9:34:46 EDT AM