* Vancouver least affordable, followed by Toronto
* Lower house prices, mortgage rates helping affordability
* Higher rates seen in 2014
By Andrea Hopkins
TORONTO, Feb 25 Small declines in home prices
and mortgage rates made Canadian home ownership slightly more
affordable in the fourth quarter of 2012, the second straight
improvement, and soft home buyer demand may help continue the
trend in 2013, according to a report by RBC Economics released
RBC, Canada's largest bank and a huge mortgage lender,
measures affordability as the percentage of monthly pre-tax
income for a household needed to cover the typical costs of
owning a home, including mortgage payments, utilities and
By that measure, the cost of owning a home edged down by 0.2
percentage point to 42.1 percent for a detached bungalow, by 0.3
percentage point to 47.8 percent for a two-story home, and by
0.2 percentage point to 28.0 percent for a condominium, the RBC
Housing Affordability index showed.
"Exceptionally low interest rates have been the key factor
keeping home affordability from reaching dangerous levels in
recent years," RBC chief economist Craig Wright said in a
"Residential property values are elevated in Canada and, for
many households, ownership remains accessible only because of
rock-bottom mortgage rates. It could be a different story if
interest rates were to move swiftly and significantly higher."
While a government move to tighten mortgage lending has
helped cool Canada's hot housing market, RBC said it expects the
restrictive effects of rule changes to dissipate, helping to
offset otherwise subdued housing market activity in 2013.
Under changes that took effect in July, the maximum length of
an insured mortgage was shortened to 25 years, and the amount
homeowners could borrow with a home equity loan was capped. The
changes made it more difficult for homeowners to take on too
much debt trying to get into Canada's expensive housing market.
Wright said he expects the Bank of Canada to leave its
overnight rate unchanged at 1 percent through 2013 and gradually
begin to increase it in 2014. By then, the Canadian economy is
expected to be on a stronger footing, offsetting some of the
potential negative effects of higher borrowing costs, he said.
Home ownership remained least affordable in Vancouver, but
improved, with the benchmark for detached bungalows down 2.6
percentage points from the previous quarter to 82.2 percent.
Affordability also improved in Toronto, with the benchmark
down 0.4 percentage point to 52.8 percent. Montreal was down 0.9
percentage point to 39.3 percent, Ottawa was down 0.5 percentage
point to 38.8 percent and Edmonton was down 0.1 percentage point
to 30.7 percent.
Affordability went down in Calgary, where the benchmark rose
0.2 percentage point to 38.1 percent, the report showed.