Canada property market set to cool

The property market in Canada is
set to cool over the next few months as homes become less affordable.  That’s the conclusion of property
experts after new figures from the Royal Bank of Canada found that rising
property prices and higher mortgage rates have made it harder for locals to
afford a home in many parts of the country.

If you’re thinking of buying a
property in Canada, this could be good news.  A reduction in local demand is likely to result in stable
property prices in the country, as we see next.

Erosion in home affordability in 2012

According to the Royal Bank of
Canada research, there was a ‘slight erosion’ in home affordability in the
second quarter of 2012.  This means
that a greater proportion of household income is being taken up with home loan
payments.

And, The Globe and Mail reports that ‘as temporary promotional mortgage
rates abate and the prospect of a higher benchmark interest rate from the Bank
of Canada as soon as early 2013, homes are set to become even less affordable
in the near future.’

The RBC report found that the
cost of owning a two-storey home takes up 49.4 per cent of the median pre-tax
household income, up 0.6 per cent from the first quarter.  The cost of owning a bungalow edged up
0.2 per cent to 43.4 per cent over the same period, while condominium costs
took up 28.8 per cent of a household’s income.

Robert Hogue, a senior economist
at Royal Bank of Canada, said: “I think policy makers would not want to see a
significant deterioration in affordability, although I think they would expect
some deterioration given that monetary policy is likely going to [become
tighter.”

A reduction is affordability is
expected to cool Canada’s property market which has already shown some signs of
slowing.  While recent Canadian
Real Estate Association figures showed that average home prices rose in 73 per
cent of the regions tracked between June and July, there were price declines in
the major Toronto and Vancouver markets.