Owning your own home became slightly more affordable in the third quarter of 2011 thanks to continuing low interest rates, according to RBC's latest study on housing affordability.
The affordability measure captures the proportion of pre-tax household income that would be needed to service the costs of owning a certain type of home. In the third quarter, that index fell for all categories of housing.
"Housing affordability levels are quite good in most parts of Canada and will pose little threat to overall housing demand," said Craig Wright, senior vice-president and chief economist. "The Vancouver-area market continues to be a major exception, with sky-high property values in upscale neighbourhoods making it both extremely unaffordable and the most at risk of a downward correction."
The uncertainty affecting the global economy, with Europe mired in a debt crisis, is helping to keep interest rates close to historic lows. Rates are unlikely to rise until the middle of next year, and even then only gradually, RBC said.
The cost of owning a detached bungalow dropped in most major cities in the third quarter, with the exception of Toronto and Calgary, which ticked higher.
Although overall affordability improved slightly in the three months to September, housing costs in Toronto, Montreal and Ottawa are also in an "uncomfortable" range.
"We expect to see further slowing in the pace of home price increases next year, as housing demand levels out," said Wright. "These factors will set the stage for a period of relative stability in affordability trends in Canada."
According to the index, the higher the reading, the less affordable it becomes to own a home.
For example, an affordability reading of 50% means that home-ownership costs, including mortgage payments, utilities and property taxes, take up 50% of a typical household's monthly pre-tax income.
The index in Vancouver stands at 90.6%, Toronto 52.1% and Montreal 40.9%.