Lately the news has been flooded with articles about the affordable housing market in Alberta. All this excitement was the result of the release of the RBC November report on Housing Trends & Affordability.
You may have heard Alberta had the lowest affordability measures of all the provinces in Canada:
- Detached bungalow: 32.8%
- Standard two-storey: 36.0%
- Standard condominium: 21.3%
Calgary housing affordability was slightly higher than the provincial numbers but "continues to be one of the most affordable major cities in the country":
- Detached Calgary bungalow: 37.6%
- Standard Calgary two-storey: 38.2%
- Standard Calgary condominium: 23.2%
This sounds great, but what exactly does it all mean? Where do these numbers come from?
What is the "Housing Affordability Index"?
The Housing Affordability Index is the percentage of a family's gross income that is needed to service the cost of owning a particular property in a certain area of the country. The lower the percentage (%), the more affordable the market is.
In Canada, the three "standard" types of properties the index tracks are:
- Condo (refers to a condominium with an interior size of 900 square feet)
- Bungalow (refers to a detached bungalow with an interior size of 1,200 square feet)
- Standard 2-storey (refers to a detached 2-storey home with an interior size of 1,500 square feet)
Housing affordability measures are calculated based on several criteria:
Housing Affordability Formula
First, the bank determines how much gross income will be required to meet a regular mortgage payment (principal and interest), property taxes, and utilities. This number varies slightly depending on the type of house - Detached bungalow, standard two-storey, or standard condo (doesn't include condo fees).
This is based on the buyer making a minimum 25% down payment, and assuming a 25-year mortgage at a five-year fixed rate. All these factors are estimated quarterly for each province.
The measure is based on gross household income, not including property-tax credits.
One other important factor is "Qualifying Income." Generally a maximum 32% of a buyer's gross annual income should be applied to mortgage expenses.
Once these figures are taken into account, you have a Housing Affordability Measure.
In Alberta, based on a detached bungalow, it's estimated that mortgage payments, taxes, utilities, and taxes total about 32.8% of an average household's pre-tax earnings, and the Qualifying Income is $75,900.
That same house in British Columbia would have a 75.1% affordability measure and a Qualifying Income of $128,600.
Some other great news that came out of the Royal Bank report was the expectation that the Bank of Canada will keep interest rates at their present low levels until mid 2012, with only gradual increases in the following months. This, combined with moderate gains in property values translates into good news for real estate in Calgary, Alberta and the rest of the country.
We'd be happy to discuss this or answer any questions on Calgary real estate - please feel free to contact me below, or if you'd like to chat with me page me directly through Royal LePage Solutions @ 403-252-5900.
If you're looking to sell or buy, do not hesitate to contact us.
We are prepared to work hard ensuring that your needs are met and that the result is more than you were hoping for. Nothing gives us more pleasure than your success and being with you through major life changes.