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Canadian home ownership was less affordable in the second quarter as house prices climbed again in most cities, but demand should cool as new mortgage rules take effect, a report by RBC Economics showed on Monday.
The cost of owning a home edged up 0.2 percentage points to 43.4 percent for a detached bungalow and by 0.6 percentage points to 49.4 percent for a two-story home, while the measure for condos was unchanged at 28.8 percent, the RBC Housing Affordability index showed.
The report measures how much of a household's monthly pre-tax income is required to cover the typical costs of owning a home, including mortgage payments, utilities and property taxes. An affordability of 50 percent means homeownership costs take up half of the household's gross income.
"Market conditions remained fairly balanced across the country in the second quarter, laying the groundwork for further price increases, which in turn contributed to a decrease in affordability," Craig Wright, senior vice-president and chief economist at RBC, said in a statement.
"Going forward, we anticipate that the latest mortgage insurance rule changes and prospects for further erosion in affordability will restrain homebuyer demand in Canada."
In changes that took effect in July, Finance Minister Jim Flaherty shortened the maximum length of an insured mortgage to 25 years and capped the amount homeowners could take out with a home equity loan, among other changes. The changes make it more difficult for homeowners to take on too much debt in the country's red-hot housing market.
Wright said he expected the Bank of Canada to start raising interest rates early next year, assuming problems in Europe and the United States are addressed. That will drive up mortgage costs and make housing even more unaffordable. But he said rising incomes and the gradual nature of the expected rate increases will temper the negative impact on the housing market.
The RBC affordability measure showed the costs of homeownership had surpassed the long-term averages for both single-family home categories, but that the national figures were exaggerated by extremely poor affordability in the Vancouver area.
Home ownership was least affordable in Vancouver, where the benchmark for detached bungalows rose 2.2 percentage points to 91.0 percent, followed by Toronto, where it rose 0.9 percentage points to 54.5 percent. Ottawa was unchanged at 41.9 percent, Montreal was down 1.0 percentage points to 40.4 percent, Calgary was unchanged at 36.7 percent, and Edmonton fell 0.1 percentage points to 32.4 percent.