Still Not Too Late to Buy a Home

What's going to happen to housing affordability?

Let's just say that if you haven't bought by now, it's very possible you might have missed the bottom of the market.

For something like 24 months, builders have been cutting prices and offering other incentives, while lenders have been holding mortgage rates down at historically low levels.

At the same time, the federal government was dangling its own ownership incentives to first-time buyers.

But now the worm is turning. Builders are already announcing price hikes due in part to rising materials costs. There are also suggestions mortgage rates might begin to move up --nothing serious, but an increase, nonetheless.

It was in this scenario that RBC released a report on affordability from April to June.

The bank says the three-month period marked the fifth straight quarter in which affordability improved at the national level -- down to a point where it took just 39.1 per cent of pretax household income to pay the monthly mortgage, property taxes and utilities on a bungalow, or 44.4 per cent on a two-storey home.

Alberta checked in at 33.5 per cent of pre-tax household income for bungalows and 36.6 per cent for a two-storey home, both well below the national average.

In its report, RBC says affordability has now been "restored" to pre-housing boom levels -- those prevailing in late 2005 and early 2006.

But hold on, here it comes: "However, this restorative phase of the affordability cycle is likely running out of steam," says the report. "The two major contributors to the significant improvement during the past two years or so -- the decline in rates and the drift down in prices -- appear to have reached turning points."

After hitting "generational" lows in the spring, some mortgage rates -- including five-year fixed mortgages on which the RBC affordability measures are based -- rose modestly in the summer.

As well, the earlier generalized weakness in property prices has largely dissipated in recent months in most parts of the country.

Some areas have even begun to register gains again.

Yet this by no means suggests affordability has been tossed out with the wash water. There's no need to panic -- ownership opportunities are still there.

As the bank says: "While those shifting trends will cease to drive affordability improvements, the next phase in the coming quarters will not necessarily be one of wholesale deterioration with continued expected growth in household income providing some offset.

"More likely, the period ahead will be marked by a certain levelling off in affordability."

That's the national picture.

In Alberta, affordability levels are below long-term averages, says the bank.

"The significant improvement since mid-2007 greatly reflected double-digit price declines since the market peak, which have amplified the effect of the drop in mortgage rates," it says.

And out came the buyers, in droves, in response to what RBC calls the "more palatable" ownership costs.

The first to feel the resurgence was the resale market, in which sales have jumped more than 60 per cent between April and July, "fully retracing last year's slide," says the report.

The strength of that market has caused some shortages in resale listings, which has caused consumers to buy new homes built for people looking for quick possessions.

That movement has now advanced to the point where new home presale figures are moving up as well.

Calgary households living in a bungalow were using just under 36 per cent of income to cover P.I.T. (principal, interest and taxes) and utilities, or 36.5 per cent if they're in a two-storey home -- both slight declines from the previous quarter.

"Housing market fundamentals have greatly improved in recent months in Calgary and this is helping activity to climb out of its deep hole," says the RBC report. "The sizeable drop in mortgage rates and slide in property prices since the latter part of 2007 have worked to fully restore affordability in the city."

So, what's going to happen to affordability?

It will decline--marginally at worst, but still leaving a good-sized window of opportunity for those looking to buy.

mhope@theherald.canwest.com