Source: ATB Financial & Troy Media
Home sales have been in free fall in some major Canadian markets, triggering anxiety that prices might soon follow. The correction is being blamed on changes to mortgage insurance (MI) rules. Although those rules apply nationally, Alberta remains in good shape.
Alberta is certainly no stranger to real estate exuberance. But, in many ways, the province has managed to pull off what analysts everywhere hope for: a soft landing. Compared to other places in Canada, the run-up in prices before the recession was far more dramatic, but the surge in prices post-recession was nearly non-existent after the initial drop, greatly improving affordability as wages kept rising and interest rates dropped like a rock.
Between June 2008 and June 2012, average industrial wages have increased by about $143/week in Alberta compared to about $87/week nationally. This has helped make Alberta a relatively affordable place to live. As of August 2012 the ratio of monthly wage income to pay the average residential mortgage payment was 39 per cent in Alberta, compared to 58 per cent in British Columbia and 47 per cent in Ontario.
In fact, due to lower taxes and more non-standard pay structures (such as bonuses), it’s likely that home affordability in Alberta is even more favourable relative to Canada’s other large provinces than the above ratio would suggest.
At the end of the day the changes to MI rules are equivalent to having the limit on your credit card reduced. If your business is selling largely to individuals who could pay only because of generous financing terms, then you’re in more trouble than the merchant selling to individuals who needed those terms less.
Mike’s note: Saskatchewan and Atlantic provinces are more “affordable” than Alberta and yet their mortgage arrears rate increased in the most recent report. Alberta still has the highest rate of mortgage arrears of all the provinces but has been gradually improving since peaking in early 2011.
Another ATB economist recently said high hourly wages in Alberta come with a few drawbacks. “Despite being a lower tax environment than some other places, Alberta can be an expensive place to live,” he said. “As well, there is one group of Albertans who are not pleased at all with the high wages — employers.”
Related post: Canadian House Price Affordability Measures Still Misleading (Economic Analyst)