The average monthly carrying cost of new home ownership is now 30.5 per cent of household income, well below the 60 to 70 per cent level of the early 1990s. This is seen as a strong indicator that the real estate market will continue to be robust for the rest of the year in spite of recent higher interest rates and higher housing prices, says a new report from the BMO Financial Group Economics Department.
The BMO economic report noted that the national average sale price for housing during the first quarter of 2003 rose 8.5 per cent from a year ago to $198,418. Over the same period, the monthly cost of a variable rate mortgage rose 17.8 per cent to $1,001 (based on a 10 per cent down-payment and a 25-year amortization period).
Despite these increases, the carrying cost of homes continues to be affordable for most Canadians. “Housing affordability has been and will remain favourable across the Canadian market in the near term,” said Michael Gregory, Assistant Chief Economist, BMO Financial Group.
“Payments are only one side of the affordability coin: the other is income,” said Gregory. “In the first quarter, average income advanced at a 2.5 per cent year-over-year rate and job growth was 3.4 per cent. In other words, Canadians are working and earning more, and this provides a partial offset to higher mortgage payments.”
The report also notes that monthly housing mortgage payments have historically averaged 43.6 per cent of household income, a point at which, if reached, demand would probably begin to soften noticeably.
“Given the current high level of affordability, with monthly payments still at the historically modest level of 30.5 per cent of total household income, the housing market should be able to weather still higher prices and interest rates, rather than dropping under the weight of mounting mortgage payments,” said Gregory. “The economic indicators all point to Canada’s housing boom landing softly, rather than with a thud, which is good news for existing homeowners and those just about to buy.”
The highest monthly carrying costs in the country (among the largest metropolitan areas) were in Vancouver, at $1,587, and in Toronto-Oshawa, at $1,462. The lowest carrying cost locations in the country were Saint John, at $489, and Regina, at $506.
Saint John also witnessed the lowest change in year-over-year carrying costs with an increase of only 2.0 per cent, while Montreal and Quebec City saw the highest spikes at more than 26 per cent. Other centres with strong year-over-year increases included Victoria (up 22.6 per cent), Halifax (up 20.4 per cent), St. John’s (up 19.8 per cent) and Edmonton (up 19.0 per cent).
*The average value of properties sold during the period, as reported by the Canadian Real Estate Association. The data are not adjusted to reflect the size or style of house.
The full BMO housing report can be found at www.bmo.com/economic.
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