Affordability

Mixed signals in the U.S. housing market recovery suggest the beginning of affordability issues: “A number of housing indicators – including new home sales, housing starts, and new purchase mortgage applications – have softened in recent months relative to their trend over the past year,” confirmed Goldman Sachs in a note to clients this week (see Here’s What to Make of All the Ugly Housing Data at Business Insider).

Meanwhile in Canada, an RBC report addressing the affordability of Canadian housing is being digested this week (see Owning a Home Becoming Less Affordable at CBC News). In the report, RBC Chief economist Craig Wright notes that the deterioration in affordability here in Canada didn’t scare many homebuyers from jumping feet first into the housing market during Q2; sales actually surged by 6.4 per cent.

Wright notes that affordability has been flat-lined over the past few years as low rates helped to offset rising prices. With mortgage rates rising however, Canadians could face even more difficulty affording a house. Wright adds that the situation of affordability is more complex than simply interest rates. A sharp spike in rates will cause problems, yet most, including the Bank of Canada, anticipate the increases will be modest and gradual. Also, the bank will likely only start a monetary policy tightening phase as the economy improves, meaning higher rates might be offset by an improvement in employment and incomes, which could offset the negative impact on household finances. Higher rates might also lead to lower real estate prices, which also improves affordability.
This Labour Day Weekend, that’s the way it is…

Labour Day thoughts…

“A Labour of Love will eventually pay for itself.”

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