Home affordability questioned

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The Royal Bank’s latest affordability study shows it’s becoming increasingly difficult for families to own a home, especially in hot housing markets like Vancouver, Calgary and Toronto.

Marvin Ryder of the DeGroote School of Business says the percentage of pre-tax household income needed to service the cost of owning a home is seeing marginal increases.

“Because people are buying bigger more costly homes and all the RBC is trying to warn people is, if these interest rates start to go up — no one thinks that’s going to happen immediately, but say in late 2015 or 16 — not the principal payment but the debt portion is going to have to go up, and that’s going to make it unaffordable for some people.”

“Translation: do what ever you can to to pay down as much principal as possible when interest rates are low and then whenever they go up, you can renegotiate your mortgage and get a new balance, a little less principal repayment, a little more for the debt servicing charges.”

Right now, home affordability is at a 24-year high. The Royal Bank’s chief economist says affordability isn’t threatening the housing market right now, but it might become a more serious issue.