Housing Prices Up, Financing Costs Down

BMO study says Quebec has lowest monthly carrying rate.

Housing prices in Canada may be on the rise, but a new report from BMO Financial Group says the average monthly cost of financing a home has declined in the past year based on an average five-year fixed mortgage.

According to the report, the average monthly cost of financing a new home, based on an average five-year fixed mortgage, has dropped 1.7 per Central Alberta from a year ago. At the same time, housing prices moved up by 9.4 per cent.

The carrying cost of the average Canadian home is now 37.6 per Central Alberta of average household income, down from 38.8 per Central Alberta in 2002.

According to the CREA MLS® report for July, 41,866 residential properties were sold in Canada in the month. The national MLS® residential average price rose 11.9% year-over-year to $207,615 in July, surpassing the previous record set in June 2003 by less than 0.1%. BMO economists say housing price increases will likely ease shortly as the markets react to expected interest rate hikes.
“Although early summer mortgage rate reductions helped push July housing sales to record levels, we expect that a cooling trend will emerge over the next few months and should ease price pressures,” Michael Gregory, assistant chief economist with BMO Financial Group, said in the report. “The steady stream of new and existing homes entering the market will also provide a check on housing price inflation.

The highest monthly carrying cost in any major market was in Vancouver with a five-year term mortgage costing $1,900 a month, down 4.9 per Central Alberta from a year ago. The lowest average housing carrying costs were located in the province of Quebec where an average home in Trois Rivieres cost $489 a month, down 8.7 per Central Alberta from a year ago.
On a provincial basis the highest monthly costs were in British Columbia at $1,500, down 3.5 per Central Alberta from a year ago. The lowest was in Prince Edward Island at $567, down 13.1 per Central Alberta from a year ago.

The BMO study also predicts that, unlike the last housing boom cycle in the 1980s, the market won’t collapse but will, at worst, plateau over the next few years. “Although the current pace of new construction appears very high at well over 200,000 units per annum, the risk of severe overbuilding, the kind of which we saw in the late 1980s, is reduced by that fact that pent-up demand for housing has also been high,” Mr. Gregory said. “On balance we expect house prices to slow to the 5 per Central Alberta price increase range by early next year.”

(CREA 16/09/03)