In a report released yesterday tailor made to rebutt Demographia’s recent affordability survey, BMO asserts that most of Canada is actually affordable and would remain so even if interest rates rise 2%. BMO explains it’s because they included an important determinant of affordability that Demographia’s affordability measure excluded: mortgage rates.
While BMO admits that housing relative to personal income is about 10% overvalued, affordability is a only a problem for the median family seeking to buy a detached house in Vancouver, Toronto and Victoria and all three cities are vulnerable to a material correction if income or rates move adversely.
Outside these three cities, BMO contends that affordability is not a major problem and should not become one even when rates normalize. In fact, BMO anticipates that prices will stabilize this year helping fears of a deep housing correction recede and that Alberta could actually see further moderate price gains if commodity prices remain elevated.
BMO reports that Canada’s current overvaluation is about half that in 1989, when national prices subsequently fell 13%, and about 1/3 of the U.S. peak in 2005, when prices eventually crashed 34%.
Just a few days ago I wrote the post: “Calgary’s Growing Housing Affordability Gap“. Do you think Calgary has an affordability problem, or is BMO correct?
To download the entire report, click here (pg 7)