Housing costs increase in city, but 'sustainable'

Housing affordability in Calgary tightened again during the past quarter, although the local market shows no signs of overheating, says RBC Economics.
Its Housing Trends and Affordability Report, released Tuesday, said rising house prices – growing at the fastest rate in Canada – can be absorbed “fairly easily” by high, and growing, household incomes.
“All RBC’s measures for the area continue to be well below their long-term averages, which suggest that developments to date in the Calgary-area market have been quite sustainable.”
The report calculates the proportion of median pre-tax household income needed to service the cost of mortgage payments (principal and interest), property taxes and utilities.
A reading of 50 per cent means service costs require half of a household’s pre-tax income.
RBC said its measures increased in all three categories from the last quarter: By 0.9 percentage points for bungalows (to 34.5 per cent), one percentage point for two-storey homes (to 35.0 per cent) and 0.5 percentage points for condo apartments (to 20.4 per cent).
The report painted a similar picture for Alberta’s housing markets on the whole with few signs of overheating.
“All RBC’s measures continue to be below their long-term average in the province,” the report states.
Across the country, RBC said home price increases in some of Canada’s largest markets further accelerated in the first quarter of 2014, boosting home ownership costs and triggering some erosion in affordability.
“Prices for single-family homes in Calgary, Toronto and Vancouver had considerable upward momentum during the first quarter, and led to the strongest annual price gains nationally in nearly two years,” said Craig Wright, senior vice-president and chief economist of RBC. “This stood in the way of any widespread improvement in affordability conditions across Canada.”
But RBC said the latest “knock to affordability” was modest and did not pose any immediate threat to the health of Canada’s housing market. “We expect the rest of the spring season to offer a pick-up in housing activity, largely owing to fixed mortgage rates that recently eased to historical lows,” said Wright.
“This strength will be short-lived, though, as we believe that there is limited pent-up demand in the first place, and that longer-term interest rates will start to rise by the third quarter of this year.”