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TORONTO, ONTARIO--(Marketwire - Feb. 22, 2013) - According to a new report from BMO Economics, affordability is not a major problem for the median-income family seeking to buy a detached home in three-quarters of Canada's housing market or a condo in Toronto, and should not become one even when rates normalize.

"Nationwide, mortgage payments on the average-priced house consume a moderate 28 per cent of household income - 23 per cent for people living outside Vancouver and Toronto," said Sal Guatieri, Senior Economist, BMO Capital Markets. "This matches the long-run norm of 28 per cent, suggesting that rising income and falling mortgage rates have largely offset the deterioration in affordability caused by higher prices."

However, Mr. Guatieri noted that the same cannot be said for Vancouver, Toronto and Victoria.

"A typical family striving to purchase a single-family house in Vancouver would have to spend four-fifths of their income on mortgage payments, which explains why they can only dream of buying a detached house in Vancouver," said Mr. Guatieri. "In Toronto, a hefty 43 per cent of median income is required to service a mortgage on an average single-family home, up from 40 per cent eight years ago."

Mr. Guatieri added these cities are vulnerable to a material correction if income or rates move adversely. He also stated that, while affordability may not be a big problem for most of the country, policymakers should remain vigilant. "Elevated valuations, combined with record household debts, could prove troublesome in the event of a recession or interest rate shock."

However, Mr. Guatieri still expects that concerns over a national housing bubble should begin to deflate. "If interest rates remain low, income continues to rise, and prices stabilize this year - as we anticipate - fears of a deep housing correction should recede."

Sameh Elrefaei, Head of Mortgage Products, BMO Bank of Montreal, cautioned that, while the report gives reason for potential buyers in most regions to be optimistic, Canadians should continue to make responsible home financing decisions.

"Recent data show that the best way to ensure long-term housing affordability is by locking into a longer-term fixed-rate mortgage with the lowest amortization period possible," said Mr. Elrefaei. "For years now, BMO has been proactively promoting the benefits of choosing a shorter amortization and will continue to actively encourage Canadians to do so."