News Releases

Canadian housing prices during the three months from October to December 2003 were 11.1 per cent higher than during the same period a year earlier, according to a new housing affordability report released by BMO Financial Group.  The national average home price for the period was $214,856, up from $193,366 a year ago.

The study noted that the greatest year-over-year price increases were in Victoria (up 18 per cent to $301,164), in Montreal (up 17.1 per cent to $177,858), and in the Greater Vancouver Area (up 14.6 per cent to $345,132), with strong gains also registered in Quebec City (up 14 per cent to $121,850), the Durham Region of the GTA (up 12.5 per cent to $220,554) and Winnipeg (up 12.8 per cent to $109,736).

The lowest price increases in the nation were in Saskatoon (up 1.0 per cent to $122,828), St. John’s (up 2.1 per cent to $123,241) and Windsor-Essex (up 2.1 per cent to $150,512).

“Although price increases have eroded housing affordability over the past year, monthly carrying costs as a percentage of homeowners’ incomes have not risen as much as would be warranted by home prices alone because of falling interest rates and rising household incomes,” said Michael Gregory, Assistant Chief Economist, BMO Financial Group.

The report noted that during Q4 2003 monthly fixed rate mortgage payments consumed 39.4 per cent of household income.  A year earlier, payments were at 36.9 per cent of income.  Although affordability has been on a deteriorating trend, it is still well below historical averages of 47.5 per cent.  The current monthly cost of the average new home based on a five year fixed mortgage rate is $1,297.

“We forecast that rising mortgage rates and house prices later this year will lead to a further deterioration in affordability, but monthly carrying costs for new homes will still remain below their historic average as a percentage of income,” said Gregory.

The study also reports that concerns that overbuilding might be occurring and risking sharp price declines are not supported by the national housing indicators.  In fact, according to BMO economists, the data indicate a “soft landing” for the housing market.

In January, national housing starts were at an annualized 195,500 pace, dipping below 200,000 levels for the first time in eight months but still up 7.0 per cent from year ago levels.  

“While a market supply no higher than 170,000 new housing units is seen as the long-term sustainable growth level based on the trend in Canadian household formation, a higher rate of construction is still sustainable in the short term based on pent up demand from previous years and the ‘unbundling’ of formerly cohabiting households,” said Gregory.  

“We judge that the underlying demand for housing should support housing starts in the 200,000 range this year, before dropping to 180,000 units in 2005.”

The complete BMO Financial Group Housing Affordability Report for February 2004 is available at www.bmo.com/economic.  

- 30 -