Housing Affordability Not a Barrier for the Typical Buyer in Most Regions: BMO
Concerns of a nationwide housing bubble in Canada should begin to
- Latest data suggest rising income and falling mortgage rates have
offset effects of higher house prices in most markets
- Currently, mortgage payments on the average-priced house in Canada
consume a moderate 28 per cent of household income
- However, the typical family is largely priced out of the detached
property market in Vancouver, Toronto and Victoria
TORONTO, ONTARIO -- (Marketwire) -- 02/22/13 -- According to a new
report from BMO Economics, affordability is not a major problem for
the median-income family seeking to buy a detached home in
three-quarters of Canada's housing market or a condo in Toronto, and
should not become one even when rates normalize.
"Nationwide, mortgage payments on the average-priced house consume a
moderate 28 per cent of household income - 23 per cent for people
living outside Vancouver and Toronto," said Sal Guatieri, Senior
Economist, BMO Capital Markets. "This matches the long-run norm of 28
per cent, suggesting that rising income and falling mortgage rates
have largely offset the deterioration in affordability caused by
However, Mr. Guatieri noted that the same cannot be said for
Vancouver, Toronto and Victoria.
"A typical family striving to purchase a single-family house in
Vancouver would have to spend four-fifths of their income on mortgage
payments, which explains why they can only dream of buying a detached
house in Vancouver," said Mr. Guatieri. "In Toronto, a hefty 43 per
cent of median income is required to service a mortgage on an average
single-family home, up from 40 per cent eight years ago."
Mr. Guatieri added these cities are vulnerable to a material
correction if income or rates move adversely. He also stated that,
while affordability may not be a big problem for most of the country,
policymakers should remain vigilant. "Elevated valuations, combined
with record household debts, could prove troublesome in the event of
a recession or interest rate shock."
However, Mr. Guatieri still expects that concerns over a national
housing bubble should begin to deflate. "If interest rates remain
low, income continues to rise, and prices stabilize this year - as we
anticipate - fears of a deep housing correction should recede."
Sameh Elrefaei, Head of Mortgage Products, BMO Bank of Montreal,
cautioned that, while the report gives reason for potential buyers in
most regions to be optimistic, Canadians should continue to make
responsible home financing decisions.
"Recent data show that the best way to ensure long-term housing
affordability is by locking into a longer-term fixed-rate mortgage
with the lowest amortization period possible," said Mr. Elrefaei.
"For years now, BMO has been proactively promoting the benefits of
choosing a shorter amortization and will continue to actively
encourage Canadians to do so."
Peter Scott, Toronto
Matt Duffin, Toronto
Ronald Monet, Montreal
Laurie Grant, Vancouver
Press spacebar to pause and continue. Press esc to stop.