As we run full speed into a hot Toronto summer, Canadians will find it more expensive to own a home this year and in 2011. The upcoming predicted interest hike looming, with lower profit margins reported by the top 3 Canadian banks and higher than normal value of the loonie leads us into uncertain times. The erosion in affordability is going to come from higher interest rates, and rising prices. Combine the two and I think the second quarter you should expect some further deterioration in affordability.The news is not all bad, as Canada's hot housing market is coming back into balance between supply and demand following a seller-friendly period in which buyers competed for and drove up the prices of the few houses for sale during the first stages of economic recovery. As demand cools and supplies increase, the pace of price increases will slow to a crawl. Meanwhile, a new report from the Canadian Real Estate Association found that Canadian home prices are unlikely to undergo the type of sharp correction seen south of the border, where prices plummeted and foreclosures ensued. The CREA report said the income-to-house price ratio will soon revert to its long-term average as it always does as part of a normal housing market cycle. Unlike their U.S. counterparts, Canadian mortgage holders have borrowed conservatively and are accelerating mortgage repayment, which will give options to those who may face financial difficulties when they renew their mortgage at a higher rate, the report said. Affordability will be a major issue over the next two years. I think it will be relatively stable with interest rates rising, but prices actually going down a little bit will help in the long run. So fear not, we are over the hump.
What is your take on this?