Canadian housing becomes more affordable

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Thanks to the continuation of ultra-low mortgage rates, Canadian housing became more affordable during the second half of 2012, according to RBC Economics.

Data shows that during the fourth quarter of 2012, due to low mortgage rates and less buyer demand, home affordability increased for the second consecutive quarter. RBC Economics also projects that this trend will continue throughout 2013.

"Exceptionally low interest rates have been the key factor keeping home affordability from reaching dangerous levels in recent years," RBC chief economist Craig Wright said. "Residential property values are elevated in Canada and, for many households, ownership remains accessible only because of rock-bottom mortgage rates. It could be a different story if interest rates were to move swiftly and significantly higher."

The cost of homeownership decreased 0.2 percentage points during the fourth quarter of 2012, reaching 42.1 percent for a detached bungalow. Meanwhile, the cost of a two-story home fell 0.3 percentage points during the same time period, reaching 47.8 percent. The cost of a condominium declined 0.2 percent, reaching 28 percent.

RBC Economics reports that while Vancouver showed improvements, it remains the least affordable region of the country, with cost of detached bungalows falling 2.6 percentage points during the fourth quarter of 2012, reaching 82.2 percent. Meanwhile, Toronto saw a quarterly price decline of 0.4 percentage points, Montreal 0.9 percentage points, Ottawa 0.5 percentage points and Edmonton 0.1 percentage points.

On the other hand, Calgary actually saw a decline in home affordability, rising 0.2 percentage points during the fourth quarter of 2012, reaching 38.1 percent.

As for the housing market in the coming year, Wright forecast moderate activity.

"We expect overall housing market activity to remain subdued this year," Wright said. "That said, we believe that there is scope for some mild strengthening from recent activity levels, as the negative effects of the mortgage insurance rule changes, implemented in July, 2012, gradually dissipate."

Further ways to save
In addition to utilizing low mortgage rates, other options exist for home buyers hoping to save money on a property purchase.

One option is taking advantage of the Home Buyers' Plan, which allows Canadians buying their first home to take money out of their registered retirement savings plan to either buy or build a qualified home. Up to $25,000 can be withdrawn from the account per calendar year free of paying tax at the time. However, borrowers must also repay this money over the course of no more than 15 years, with certain amounts being put back into the savings plan each year until it is fully repaid. In addition to first time home buyers, Canadians with disabilities, or individuals buying on behalf of those with disabilities, can also use this program.

Another option is utilizing the First Time Home Buyers' Tax Credit. This non-refundable tax credit is good for a value up to $750 on qualified homes, which include single-family properties, semi-detached homes, townhouses, mobile homes, condominiums and apartment buildings. Again, individuals with disabilities, or those buying on their behalf, can access this program, even if it's not for a first home. Other requirements include the property being located in Canada and being bought after January 27, 2009.

For borrowers looking to compare costs and figure out the type of loan that works best with their finances, it's also a good idea to use a mortgage calculator. Canadian Equity's Mortgage Calculator can provide detailed summaries and side by side comparisons of mortgage costs based on minimal information.

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