This article points out the well known fact real estate prices in Western Canada over the past decade have stretched consumers. Will prices come down with new mortgage rules and a slowing economy?
Three of the four most expensive Canadian cities in which to buy a home are in the West. Vancouver leads the way, with an average home price of $779,730 in 2011. Victoria is the second priciest at an average of $498,300. Toronto ($466,352) and Calgary ($402,851) round out the top four. Outside of major cities, the Wood Buffalo region in Alberta, home to Ft. McMurray, has the most expensive housing in the West. The average home in that area cost $596,436 in 2011. In March 2012, the average five-year mortgage rate in Canada was 4.21%,the lowest rate in more than 60 years.The highest monthly rate was in September 1981, when the average mortgage rate hit 21.46%.
A dramatic increase in housing prices over the last several years has led to growing concerns about the affordability of home ownership in Canada, the effect of mortgages on rising consumer debt levels and the risk that real estate markets are due for a significant price correction. This issue is especially relevant to the four western provinces where real estate markets have been among the hottest in the country.
BC is by far Canada’s most expensive housing market and Vancouver the epicenter of concerns over home affordability and real estate bubbles. In 2011, the average cost of a home in BC was $561,304, almost 55% above the national average ($363,365). However, after a spectacular run-up in prices early in the 2000s, the market is showing signs of cooling off. Sales have slowed and prices in the first three months of 2012 were lower compared to the same period last year.
After a tremendous spike which saw housing prices increase by about 65% between 2005 and 2007, Alberta’s housing market has been largely stagnant. Average prices have hovered around the $355,000 range for the past four years. This extended cooling-off period, evident in both the Calgary and the Edmonton markets, has helped improve housing affordability in the province, but
is unlikely to last. Most economic forecasts call for Alberta to once again lead the country in economic growth, which is expected to trigger renewed growth in provincial housing markets.
Like Alberta, Saskatchewan saw a tremendous spike in housing prices between 2005 and 2007. Unlike Alberta, however, that trend has continued, making Saskatchewan Canada’s hottest real estate market. Buoyed by a healthy economy, housing starts have surged, reaching their highest level in nearly 30 years. Meanwhile, average housing prices have nearly doubled over the past five years, influenced by increased construction of more expensive, higher-end homes in Regina and Saskatoon.
Manitoba has had by far the most consistent housing market in the West. Although average house prices are the lowest in the region at $234,604 in 2011, they have been growing steadily and rapidly without the spikes or troughs seen elsewhere. Since 2006, house prices in Manitoba have increased by 56%, the third-fastest rate of growth in Canada, behind only Saskatchewan and Newfoundland and Labrador.
Even though housing prices have risen across the West, home ownership has remained relatively affordable thanks to the lowest mortgage rates since before the 1950s. These low rates have allowed home buyers to stay within their monthly budgets in spite of taking on larger mortgages. Meanwhile, many existing homeowners are capitalizing on their asset wealth by borrowing against the value of their property through home equity lines of credit.
The result has been the swelling consumer debt levels across Canada that is a growing concern to the Bank of Canada. While consumers are treading water for now, at some point interest
rates are going to rise and make monthly mortgage and line of credit payments a lot less affordable.
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