It seems I stand alone in my thinking that affordability is an issue for the Calgary market. Hot on the heels of BMO’s affordability research, the Royal Bank just released their Housing Trends & Affordability report and here’s what they had to write about Calgary:
2012 marked a kind of renaissance for the Calgary-area market, as it began to pull itself out of a four-year-long lethargy. Home resales climbed nearly 19% last year, and prices showed signs of firming up.
A stronger economy and accelerating population growth played key roles in this renaissance. Attractive housing affordability, however, also contributed. Calgary homebuyers enjoyed significantly lower ownership costs as a share of their income than they faced at the market peak in early 2007, and the bar fell further in 2012.
While RBC’s measures changed little from the third to the fourth quarter of 2012—rising by 0.2 percentage points for detached bungalows, remaining flat for two-storey homes, and slipping by 0.1 percentage points—improvements in previous quarters pushed all measures below their previous-year levels.
Moreover, Calgary is the only major market in Canada where all RBC measures are lower than their long-term averages.
Alberta’s market remained quite vibrant in the closing months of 2012. While the earlier strong pace of home resale growth slowed in the fourth quarter, the market tightened further because fewer properties were put up for sale.
Brisk homebuyer demand in 2012 was supported by a strong provincial economy, accelerating population growth, and attractive affordability.
Housing affordability, in fact, improved some more in the fourth quarter with RBC’s measures nudging down in all three housing categories. The measures for both detached bungalows and two-storey homes declined slightly by 0.2 percentage points, and the measure for condominium apartments fell by 0.1 percentage points.
While home prices are not particularly cheap in Alberta, the ability to carry ownership costs is facilitated by the province’s highest household income in Canada. Barring an unexpected shock to the economy, housing market conditions should remain positive in Alberta in 2013
RBC writes that affordability levels generally do not appear to pose a threat to the Canadian housing market, but things “could be radically different if interest rates were to move rapidly and significantly higher.”
Price-to-income and price-to-rent ratios—indicate that residential properties values are clearly elevated in Canada, and for many households, ownership remains accessible only because of rock-bottom mortgage rates. A sharp increase in interest rates, therefore, could be a significant blow for housing affordability in Canada however, RBC’s base case economic scenario calls for continued low interest rates.
You can download RBC’s entire report here