By Sunny Freeman

The cost of home ownership in Canada rose for the second straight quarter, but recent global market and economic turmoil could actually help keep a lid on expenses by keeping interest rates low, RBC Economics reported Monday (PDF).

During the second quarter of 2011, the proportion of pre-tax income required to service the costs of owning a home increased for all types of houses measured in RBC’s housing affordability index. But that trend may turn around going forward, said Craig Wright, RBC’s senior vice-president and chief economist.

“Renewed turmoil in global financial markets has caused heightened uncertainty with respect to the pace of global growth and we need to factor this into our outlook for the Canadian housing market,” said

“However, this volatility might have a silver lining; housing affordability in Canada may not deteriorate as quickly or by as much as we previously expected.”

Plunges in stock markets around the world in recent weeks have been driven by investor fears that the global economy is slowing down and could even re-enter a recessionary period.

Such uncertainty, however, means the Bank of Canada will be in no hurry to raise interest rates in Canada, which helps keep variable rate mortgage costs down.

RBC expects that the central bank will now keep interest rates at the current low one per cent until the middle of next year. Earlier this year, economists had expected the Bank of Canada would start raising its key rates this summer.

“What is less transparent is the degree to which affordability will be affected,” Wright said.

“Our latest forecast had home prices hitting a plateau later this year and continuing into 2012. The postponement of interest rate increases might motivate homebuyers to stay active longer, extending the current upward momentum in prices and, in turn, acting as an element eroding affordability.”

Soaring expenses in Vancouver drove the entire national index higher.

The quarterly report said detached bungalows in Vancouver were especially expensive, with the cost of mortgages payments, utilities and property taxes equivalent to 92.5 per cent of a typical household’s monthly income.

That’s up 10.4 percentage points from the previous quarter.

The report says there’s growing evidence that the cost of home ownership is keeping local buyers out of the Vancouver market.

“Vancouver’s housing market is without a doubt the most stressed in Canada and is facing the highest risk of a downturn,” said Wright.

By contrast the measure for the second-most expensive major city, Toronto, was 51.9 per cent (up 2.0 percentage points) and the national figure was 43.3 per cent (up 1.7 percentage points).

Overall, the bank’s home affordability index dipped for the second straight quarter as home prices moved higher and mortgage rates increased.

However, the bank found that most local markets continue to be reasonably affordable, or at worst, slightly unaffordable, despite the increasing costs.

“By and large, the share of household budgets, taken up by the costs of owning a home at current market values, remains close to historical norms,” Wright said.

“However, extremely poor and rapidly eroding affordability in the Vancouver-area market is somewhat skewing the national picture.”

RBC’s housing affordability index measures the proportion of pre-tax household income that would be needed to service the costs of owning a specified category of home at going market values.

During the quarter, the cost of owning a condo rose 0.8 per cent, a detached bungalow cost 1.7 per cent more and a two-storey home was 1.8 per cent higher.

Meanwhile, it said Alberta is an attractive province for would-be homebuyers, as home ownership in Calgary remains very affordable.

In Montreal, home ownership cost about 42.6 per cent of a typical family’s pre-tax income, up 1.4 percentage points from the first quarter.

Other major cities in the survey include: Ottawa (41.2 per cent, up 1.3 points), Calgary (37.1 per cent, up 0.6 points) and Edmonton (33.8 per cent, up 0.6 points).

The Canadian Real Estate Association said last week that the average home price is expected to moderate in the second half of the year, returning to normal following a heavily skewed start to the year due to a surge in multimillion-dollar sales in selected areas of Vancouver and a higher than normal share of overall sales in more expensive markets.

Additional new listings should also result in a more balanced resale housing market in most provinces, with the national average price forecast to stabilize in 2012.

It forecast that the average home price will rise 7.2 per cent in 2011 to $363,500.