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Housing in Canada became easier to afford in the last quarter of 2010, helped by lower mortgage rates and minimal appreciation in home prices, according to a study by Royal Bank of Canada.
The report by Canada's biggest bank found that affordability measures eased at the national level across the housing types it tracks in its quarterly Housing Trends and Affordability index report. It was the second straight quarter in which housing became easier to afford.
The Royal Bank's quarterly affordability index measures the proportion of pretax household income needed to service the cost of owning a home. The lower the measure, the less costly it is.
For a detached bungalow, the measure slid 0.8 percentage points to 39.9 percent. For a standard condominium, it fell 0.4 percentage points to 27.6 percent, and for a standard two-storey home it decreased 0.4 percentage points to 46.0 percent.
But the trend will likely be short-lived, the study's author said, pointing to higher borrowing costs that will come with interest rate hikes by the Bank of Canada this year and into 2012. Five-year mortgage rates have already begun to rise.
"We expect affordability measures will rise gradually in the next three years or so while monetary policy is readjusted, but will land softly thereafter once interest rates stabilize at higher levels," said Robert Hogue, senior economist, Royal Bank of Canada.
"This pattern would be consistent with moderate yet sustained stress on Canada's housing market. Overall, the era of rapid home price appreciation of the past 10 years has likely run its course and we believe that Canada has entered a period of very modest increases."
Most of Canada's provinces saw improvements in affordability in the fourth quarter, the study found.