Looking on the bright side: recession means GTA homes are more affordable
Some good news from the Royal Bank today: the ranks of Toronto’s house-poor may decline slightly, as homes in the GTA have become more affordable. Instead of home costs eating up as much as 60 per cent of household income, this year, the GTA has seen a major decline in ownership costs thanks to a double-whammy of low interest rates and softer home prices. According to the RBC report, much of the dismal data we saw earlier in the year was thanks to things like the HST kicking in.
Although triggering a fair amount of anxiety while it unfolded, the Toronto area market’s return to earth this spring was, in retrospect, a mostly benign affair. The fears were that the payback for the clearly unsustainable record high levels of existing home sales at the start of this year would be an all-out rout. The market’s recovery since August, however, confirmed that the gyrations had much more to do with the advancing of activity associated with special factors (e.g., HST and new mortgage lending rules) than the vanishing of demand. With the influence of these transitory factors largely dissipating by the end of the summer, the Toronto-area market proceeded to move on up again toward more sustainable levels of activity. Following four consecutive quarters of increases, the RBC Housing Affordability Measures fell appreciably between 1.2 and 3.8 percentage points in the third quarter.
The bad news—and there’s always bad news, isn’t there?—is that Canadian homes are still over-valued according to long-term indicators like the percentage of household income people spend. If and when interest rates start going up, homeowners could find themselves house-poor again, and RBC warns this could drag down any economic recovery.
• Housing Trends and Affordability November 2010 (PDF) [RBC]
• Housing affordability improves in GTA [Toronto Star]
• Housing affordability improves: RBC [CBC News]
• Housing becoming more affordable [Globe and Mail]