No one should be surprised at the decline in housing affordability — home prices have been steadily rising and mortage rates have also increased. But these increases have not been enough to derail the strong performance of this year’s MLS® market.
In fact, the Canadian Real Estate Association has had to revise its 2006 forecast to indicate the resale market will set another record this year before the market softens in 2007. The national association, representing over 83,000 REALTORS®, has forecast that 2006 will be the sixth consecutive year of record-breaking MLS® sales activity.
In the first quarter alone, seasonally-adjusted sales of existing homes reached 125,142, the highest quarterly total on record.
Provinces leading the way with big gains in April were Alberta, Newfoundland and Labrador and Prince Edward
Island.
CREA predicts national MLS® sales can eclipse last year’s record by one per cent and come in with 488,160 existing homes sales. The national association also forecast that sales will slip by 3.3 per cent in 2007.
CREA said average home prices are expected to rise this year by 6.1 per cent to $264,519 and 4.7 per cent to $276,951 in 2007. The average home price went up 10.2 per cent in 2005.
Despite rising house prices and interest rates, CREA’s chief economist, Gregory Klump, said the increases have been countered to some degree this year by the recent reduction in the Goods and Services Tax to 6 per cent by the Harper government, and rising household income.
He also said that the revised CREA forecast is the result of consumer confidence in home purchases remaining strong enough to sustain another hot MLS® market in 2006.
The most dramatic increase in national house prices was in Calgary. The RBC’s quarterly affordability index, which measures the portion of pre-tax household income needed to service the costs of owning a home, showed the city’s index at 50 per cent. What this means is that it takes 50 per cent of an average household’s monthly pre-tax
income to service the costs of a house in Calgary. The higher the index, the more difficult it is for the owner to afford a home.
Comparing the first quarter of 2006 with the last quarter of 2005, the index for Calgary has gone up over three percentage points for a detached bungalow.
The RBC 2006 first quarter affordability index report showed Calgary’s house prices in all classes of homes went up 25 per cent over the same quarter in 2005.
Vancouver has by far the highest affordability index at 64.4 per cent, which is almost double that of Calgary’s still rising index. Toronto is second highest at 41.7 per cent, while Manitoba’s (does not include Winnipeg’s in main chart) is at 33.5 per cent, 0.7 percentage points higher than the fourth quarter of 2005.
One interesting aspect of Manitoba’s market is the overall affordability of condominiums when compared to single-family detached bungalows or a standard two-storey home. The index for a standard condo in Manitoba is 18.8 per cent, which stacks up very well against a detached bungalow at 33.5 per cent and a standard two storey at 34.5 per cent.
Calgary and Ottawa’s two storey
affordability indexes are almost identical to Manitoba’s although the two cities’
average house prices are significantly higher: $322,853 in Calgary, $298,222 in Ottawa compared to Manitoba’s $197,600.
If you consider the key housing attributes, Calgary has significantly lower property taxes than Winnipeg and both Calgary and Ottawa have higher median household incomes.
But, there are still more homes available at lower prices in Winnipeg than in Calgary. Out of 2,043 homes that sold on MLS® in Calgary in last month, only 65 units — just over three per cent — sold under $200,000. In comparison, there were 621 — 71 per cent of single-family units — sold in April on Winnipeg’s MLS®.
If you break it down further to homes selling under $100,000, no homes sold in Calgary in this price range while there were 183 sold in Winnipeg.
The most active price range in Calgary is from $400,000 to $499,999 with just over 20 per cent of all single-family or residential-detached unit sales. Winnipeg’s percentage of sales for this price range in April was just 1.1 per cent.
Housing affordability is declining, but not enough to deter home buyers from investing in housing. As Calgary Real
Estate Board president, Kevin Clark, recently said in a Calgary Herald business article: “I would equally stress …the importance of buyer flexibility within this marketplace, talking to REALTORS® about other choices, other selections. The more rigid the criteria for the buyer, the harder it’s going to be …”
Relative to other housing markets, Winnipeg offers considerably more choice in terms of price ranges, but as Clark remarked, even here buyers may have to be more flexible when it comes to their house preference and desired location.
Whether buying or selling, the ever changing and quick pace of the local real estate market makes it important to contact their local REALTOR® for the best outcome. REALTORS® know real
estate, are connected and can offer the professional advice necessary for a consumer to make an informed decision.
Consumers get maximum exposure when they get professional representation for buying or selling a home.
Get a REALTOR®.
Get on MLS®.