Home ownership costs rise

Bidding wars and higher interest costs have led to the inevitable -- an increase in the cost of owning a home for the first time in five quarters, says a new index produced by Royal Bank of Canada.

The bank says home-ownership costs are up, something that has not happened since the spring of 2008. Despite the increase, costs are still off the peak of this housing cycle.

Royal Bank says 45.8% of pre-tax household income was needed to service the cost of owning a standard detached home in the third quarter of this year. That was up 1.2 percentage points from a quarter ago but well off the high of 52.3% hit in spring 2008. The record high was 57.1%, reached in the second quarter of 1990.

"Home affordability has deteriorated in all provinces and major markets in Canada due to a slight rise in key mortgage rates and appreciation in property values," said Robert Hogue, senior economist at Royal Bank.

Figures released this month from the Canadian Real Estate Association, which represents 100 boards across the country, show the trend of escalating prices is not slowing down. The Ottawa-based group said existing home prices were up 20.7% last month from October, 2008, the largest year-over-year increase in 20 years.

Those price increases have come as interest rates have also started to rise. Mr. Hogue said the 5.4% posted rate for a five-year closed mortgage, reached in the second quarter, was the lowest since Royal Bank started doing the study in 1985. Rates climbed to 5.73% in the third quarter for a five-year closed mortgage. The posted rate is generally at least one percentage point higher than what consumers can get on a discounted basis.

Prices have also been hit by supply shortages. New listings last month in the country's 25 largest markets were off 16% from a year ago. New-home construction is on the rise but has not been able to respond fast enough to meet demand.

Phil Soper, chief executive of Royal LePage Real Estate Services, expects the supply-side problem to improve in the spring, a time more families consider selling to coincide with the end of the school year. "It's a much more common time for people to list their homes than this time of year," said Mr. Soper. "I suspect the supply-side of this problem will ease considerably."

This is a condensed version of a story that appeared in the Financial Post on Thursday.

("Ownership Costs Rise, RBC finds" prepared by Garry Marr/National Post)