TORONTO - The cost of home ownership went up in Canada for the first time in 18 months, with tight supply and strong demand expected to keep prices high going forward in 2010, a new report by the Royal Bank says.
Consumers planning to buy houses should take note that the current low interest rates aren't going to hold indefinitely, senior economist Robert Hogue said Wednesday.
"Families and households that are considering making the leap have be mindful that, yes, there are very attractive interest rates right now but it's not going to remain at this level forever," he said.
Costs increased for the first time since the spring of 2008 due to a slight rise in mortgage rates and higher property values, Hogue said in a housing trends and affordability report.
"You've got much tighter markets across Canada and that's heating up prices," Hogue said.
"So when you mix a slight increase in mortgage rates and higher prices, you end up with higher mortgage payments. We're not going to get an improvement in affordability coming from lower mortgages going forward."
RBC measures housing affordability as the proportion of pre-tax household income needed to service the costs of owning a home.
During the third quarter, the benchmark detached bungalow moved up by one percentage point to 40.2 per cent and the standard townhouse rose by 0.7 of a percentage point to 32.3 per cent.
The standard condo climbed by half a percentage point to 27.6 per cent and a standard two-storey home increased 1.2 percentage points to 45.8 per cent.
Hogue said consumers should take Bank of Canada governor Mark Carney's words to heart that interest rates are exceptionally low.
"They shouldn't plan on those rates remaining at current levels forever. The next phase will be higher rising interest rates."
Mortgage industry experts have suggested that while interest rates aren't going up any time soon, when they do the rise it will be rapid enough to potentially prove devastating for homeowners who aren't prepared for increased monthly payments.
Hogue also said the tight supply of houses for resale could help new housing starts.
"If markets are tight, it sends a signal to builders that there's a lot of demand here and not enough supply, so bring more supply in."
He described the housing rebound in Vancouver as "nothing short of spectacular" with the economy just starting to get better in that province.
Prices are just starting to increase a bit in Calgary and in Toronto prices are back to "record territory" in some areas, he said.
In Montreal, the real estate market resisted the downturn quite well and price increases have been reasonably modest, Hogue noted.
