Calgary Housing Affordability Update
As noted in previous posts, Calgary’s affordability has been on an improving trend. RBC economics shows that the current affordability in Calgary is nearing cyclical lows. If one looks at the period, all of the time between 1998 – 2005 I would consider fairly good times to buy. Since 2007, a combination of rising household income, falling house prices and lower interest rates have all improved the affordability of housing.
It’s important that individual market participants come up with a budget before buying that includes maintenance costs, condo fees, taxes, water, gas, electricity, insurance and mortgage costs. One should also budget for a higher interest rate environment when renewing in 5 years and consider things like retirement planning as well, risks of losing a job, and the amount of disposal income one will have available after tax.
I think the affordability metric is one indicator of the relative value of housing (particularly in Canada) as Canada has not had the same volumes of subprime lending. Studies have shown that regions within the US with higher amounts of subprime lending have fallen faster and harder than regions that don’t have the same amount of subprime lending (even if prices are relatively elevated in both cases). In regions with high amounts of subprime lending, I believe it is more important to pay attention to price to income instead of affordability.
I think that affordability is a leading indicator for future mortgage arrears. When affordability becomes stretched, it’s likely that mortgage arrears will increase countercyclically over the following years. The Calgary real estate correction in 1982 was predicated on extremely poor levels of affordability as noted in a previous post.
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To see the most recent RBC Report click here: RBC Housing Affordability Report
