HOUSING TRENDS AND AFFORDABILITY: Improved affordability lifts Canada’s housing markets

The Canadian housing market appears to be on the mend, with affordability measures returning to or near long term averages. Aggressive policy action by the Bank of Canada and the Federal Government to create confidence in the financial markets and jump start the economy are generally responsible for the markets improvements. The Bank of Canada has put in place a rate cutting campaign alongside the Federal Government’s active support of the mortgage securities market which have caused meaningfully reductions to the cost of homeownership and resulted in three consecutive quarterly improvements in housing affordability. This has improved the housing affordability measures to near or at long term averages, which is consistent with more solid market fundamentals. These strong discounts have proven to be powerful incentives in drawing buyers back in to the market. 

Monthly mortgage payments in the first quarter had generally decreased by approximately 17% nationally from Canadian payments a year earlier with large major cities such as Calgary and Edmonton seeing decline rates of 24% and 20% respectively. However, property values recently have been showing signs of stabilizing after having been under severe pressure for some time.

In Alberta particularly, the housing market conditions have tightened quite substantially due to the strong buyer’s interest and the restraint on the part of the sellers. The limited supply hitting the market has caused a 14 year low in housing starts since the beginning of this year however the economy is expected to help show improvements and increasing signs of recovery. Ultimately, the Alberta housing market is at a significant turning point for the better.

The Canadian housing market seems to be making great progress on the road to recovery however; there are still obstacles in its path. As recently as June several mortgage rates were raised resulting in a reminder that the notable improvement in affordability attributed to lower mortgage rates is likely over. In order for the affordability measures to improve further the gains will be dependent on increases in family income and improvements in the economy.
http://www.rbc.com/economics/market/pdf/house.pdf