Despite house price increases, Vancouver housing affordability actually improved in 2014's second quarter because of low mortgage rates, according to RBC's latest Housing Trends and Affordability report.
The banks said that across the country and even in cities such as Vancouver, Toronto and Calgary, where there were significant house price increases, owning a home became more affordable in Q2. This was because, in that period, fixed mortgage rates fell more than they have done in almost four years.
Across Canada, RBC's affordability measures fell for all housing types (a decrease represents an improvement in affordability). The measures dropped by 0.9 percentage points from the first quarter of 2014 to 48.0 per cent for two-storey homes, by 0.6 percentage points to 42.5 per cent for detached bungalows, and by 0.4 percentage points to 27.4 per cent for condos.
In Vancouver, RBC's measures fell from 0.3 percentage points in Q1 2014 to 1.3 percentage points in Q2. The bank reported that this modest improvement in affordability may have been among the factors contributing to a rise in home resales in the second quarter; however, it added that the effect was limited given that affordability levels remains poor in the area, with all RBC measures still well above historical averages.
Across BC, the RBC measure dropped fairly significantly for two-storey homes (2.0 percentage points). The other measures declined by 1.3 percentage points for detached bungalows and by 0.9 percentage points for condos.
However, RBC warned that the current low interest rates are not likely to last and that any improvements in affordability are expected to be short-lived.
The bank said: "We believe that the current historically low levels of interest rates in Canada are not sustainable and that longer-term rates will begin to rise later this year in anticipation of a return to tightening mode by the Bank of Canada in 2015. While continued growth in household income will provide some offset, we expect rising rates to erode housing affordability across Canada and weigh on homebuyer demand. The effect will be gradual and unlikely to unhinge either overall affordability or the market, thereby leading to a cooling of activity as opposed to a US-style crash."
To read the report, click here.
