A new report by RBC Economics Research forecasts that homeownership costs will continue to rise in 2019 in Calgary and Edmonton.
In Navigating 2019: 9 big insights for the year ahead, the financial institution said homeownership costs at market value as a percentage of median household income is expected to rise in Calgary from 43.9 per cent in the second quarter of last year to 46.8 per cent in the fourth quarter of 2019. The affordability measure is expected to rise in Edmonton from 28.4 per cent to 29.4 per cent in the same time frame.
“Not since the financial crisis have markets ended the year with such uncertainty as they did in 2018,” said the RBC report.
“Last year’s final trading days, and weeks, signalled a worrisome divergence in views about the economy, global trade and policy predictability that will likely continue into 2019.”
The bank forecasts 1.7 per cent economic growth for Canada in 2019.
“Policy-makers likely give themselves high marks for guiding Canada’s housing market to a soft landing in 2018, yet there has been no improvement in affordability. The bar to home ownership is higher than ever in Vancouver and Toronto, where a typical household would need to spend a record 88 per cent and 76 per cent of its income, respectively, to pay the mortgage, property taxes and utilities for a home purchased today. The bar will get even higher in 2019, as the Bank of Canada continues to hike rates. Add in tougher mortgage stress-test rules and some first-time buyers will be looking at a very high hurdle,” said the report.
“Eighteen months in, Canadian households have yet to feel the full brunt of the Bank of Canada’s interest-rate hiking cycle, from the increases that have already happened and those yet to come. The amount of interest households pay is poised to rise in the year ahead – adding to increases households were forced to absorb in 2018.”
RBC said the average household principal and interest payment is expect to rise by 7.6 per cent in 2019.
“In this age of elevated household-debt levels, even small upticks in interest rates can produce large increases in interest payments. We estimate an average household will pay about $1,000 more in 2019 to service its principal and interest obligations. That would represent a 7.6 per cent jump from 2018 – a tough pill to swallow for many. Rising incomes, however, will provide a buffer. We expect average disposable income per household before debt-service obligations will grow by $2,300 in 2019. This means that after servicing its debt, the average Canadian household will end up with $1,300 more in its pocket,” added the report.
“A nice cushion like this will keep a majority of households out of trouble. The question, though, is whether it will be enough to cover the rise in the cost of other goods and services. For many Canadians, it probably won’t. Expect some belt-tightening in the year ahead.”
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