House Price Gains Remain Strong for Atlantic Canada

Atlantic Canada witnessed its second consecutive quarterly drop in housing affordability, according to a new report issued today by RBC Economics.

"With market indicators suggesting that house price growth has come to a near standstill, prices continue to remain at last quarter's record levels," said Derek Holt, assistant chief economist, RBC. "Higher mortgage rates and weaker income growth, coupled with the lingering effects of higher prices from the previous quarter, have contributed to these declining conditions. Over the next couple of years, we do expect the housing market to cool in a gradual, controlled manner across the Atlantic region."

RBC's Housing Affordability Index for the Atlantic provinces, which measures the proportion of pre-tax household income needed to service the costs of owning a home, continued on its mildly deteriorating trend for the fourth quarter of 2005, increasing to 22.8 per cent for a standard townhouse, 23.1 per cent for a condo, 27.1 per cent for a detached bungalow and 33.5 per cent for a two-storey home.

The housing market in the Atlantic region continues to face challenges going into 2006. Pull-backs in residential permits and housing starts have already begun, especially in Prince Edward Island and Newfoundland and Labrador. However, an aging housing supply and migration challenges are also motivating homeowners, except in Prince Edward Island, to spend at least 50 per cent more of their incomes on renovations relative to the rest of the country, instead of upgrading to a bigger or better house.

"On a more positive note, with the nationwide retreat of energy prices, especially natural gas, homeowners should feel some relief on utility bills," noted Holt.