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Calgary Housing Affordability Update November 22, 2009

Posted by DustinRJay in Calgary real estate, Uncategorized.
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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.

[click above image to enlarge]

To see the most recent RBC Report click here: RBC Housing Affordability Report

Improving Affordability Trends in Calgary March 29, 2009

Posted by DustinRJay in Calgary real estate, carrying costs, valuation models.
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Calgary housing affordability is now better than long term averages.  This is due to three reasons:

  • growth in household income
  • falling interest rates and a
  • correction in the housing market.

The following chart also illustrates how housing affordability is much better than the early 1980’s real estate cycle and more similar to  the early 1990’s real estate cycle.  One factor for improving affordability is interest rates are at record lows (but could go lower).  One should always budget for a rise in interest rates to ensure they are not exposed to any excessive risks.

Improving Affordability Trends In Calgary

[click above for larger view]

Data: Statistics Canada, Alberta Finance, Bank of Canada, CREB, Bob Truman – First Place Realty