As rising home prices continue to outpace income growth, many young Canadians have decided to delay home ownership for another year, according to a poll released Thursday by Royal Bank of Canada.

RBC’s annual home ownership poll found that 55 per cent of respondents aged 18 to 34 said it made sense to delay a home purchase until next year. That’s 10 percentage points more than the national average for all age groups.

Meanwhile, about half of the young people in the survey who had already delved into home ownership said their mortgage was eating up too much income — suggesting their peers may have good reason to wait.

A sharp rebound in housing market activity as Canada emerged from a recession in late 2009 and early 2010 has sent home prices soaring.

The national average home price rose 8.8 per cent year over year to a record $365,192 in February, although it was skewed upward by sales in the red hot Vancouver market where the average home price was $790,380.

Meanwhile, Canada’s job market has taken longer to recover and income levels haven’t grown at the same rate. A Bank of Montreal report released last month found average resale home prices compared with personal incomes are 14 per cent above the long-term trend.

That makes it more difficult to afford a home — as mortgage payments eat into a larger portion of Canadians’ paycheques — especially those of young people who are just settling into careers and tend to have less money saved.

In addition, young people already struggling with student loan payments may be influenced by a steady stream of warnings over the past year about Canadian debt-to-income ratios reaching record highs, suggested Bernice Dunsby, RBC’s director of client acquisition for home equity.

“Canadians are heeding some of the advice around larger debt levels and stretching themselves too thin so they’re actually taking the time to pause and reflect and plan accordingly, especially when it comes to things like their down payment,” Dunsby said.

Some young people watching home prices soar beyond pre-recession levels may be waiting for a widely predicted drop anticipated over the next year or so, said David Madani, Canada economist at Capital Economics.

“We’ve kind of reached a threshold in the sense that affordability is pretty tough,” he said.

“If you’re talking about a potential young home buyer who is living in Toronto or Vancouver or some other big market, it’s really pricey to get into right now, so that’s discouraging for some young home buyers.”

First-time buyers account for a huge portion of all Canadian housing sales, making the demographic influential in determining the health of the country’s housing market.

This year’s survey, conducted by Ipsos Reid in mid-January, came at a cooling off period in the Canadian housing market following a spate of frenzied buying in the early months of last year.

There will be a drop in demand this year after a number of factors last year combined to drive buyers to jump into the market earlier than planned, Dunsby said.

Many first-time buyers rushed into the market in the first half of 2010 while the Bank of Canada’s key interest rate — which influences commercial lending rates — was set at emergency lows of 0.25 per cent because of the recession.

Those changes affect a minority of mortgage holders who opt for variable rate mortgages linked to the commercial banks’ prime rates.

“(However) they may look at interest rates as an indicator of when to jump into the market,” said Dunsby.

Some buyers also wanted to enter the market before the new harmonized sales tax was implemented last July in Ontario and British Columbia, two of the country’s largest real-estate markets.

Although the HST only applied to some services associated with a home purchase, such as lawyers’ fees, some buyers thought it could push closing costs up a lot more.

First-time homebuyers are also most affected by government moves to change mortgage rules that made it more difficult to qualify for a mortgage. Stricter lending rules brought in the spring of 2010 require all homebuyers to qualify for a standard five-year, fixed-rate mortgage.

More recently, new changes enacted last month shortened the maximum amortization period for a mortgage to 30 years from 35, increasing the size of monthly mortgage payments.

Demand for homes began to wane last spring in the face of rising home prices and short-term mortgage rates, along with stricter mortgage rules and the exhaustion of pent-up demand from the recession.

That has put buyers and sellers on a more even footing when they negotiate.

“In a more balanced housing market, it makes sense that younger and first-time homebuyers are waiting to assess all of their options and do their research before buying a home,” Dunsby said.

“It’s also important to get expert advice on what you can afford and leave yourself with a little extra wiggle room in your budget so you don’t become house poor, as home maintenance and lifestyle costs can add up.”

While 43 per cent of younger Canadians told Ipsos Reid they were paying off their mortgage faster than expected, two-thirds, or 66 per cent, said their mortgages were still larger than they would like.

Rising real estate prices, along with having a large enough down payment, were the biggest concerns among young people surveyed.

Still, 43 per cent of the young adults who responded to the survey said they were looking to buy in the next two years, suggesting the housing market will continue to be healthy going forward.

That’s higher than the national average of 29 per cent for all age groups.

In comparison, only 29 per cent of Canadians aged 35 to 54 said they want to buy within two years and only 17 per cent of respondents over 55 were looking.

The survey also revealed that young people have different ideas about how to seek advice on home ownership than those belonging to older generations.

Most young people said they were more inclined to use websites, family or friends for advice while more than 70 per cent of Canadians over 45 said they would rely on a real estate agent.

The survey’s findings are based on responses from an online panel of 2,103 Canadians, conducted Jan. 12 to 17. A survey of this size has a margin of error of plus or minus two percentage points 19 times out of 20

Stronger economic growth, propelled by a commodity boom and an improving U.S. job market, will prompt the Bank of Canada to begin rate hikes in July to a 2% level by the end of the year and 3.5% in late 2012, economists at BMO Capital Markets said Wednesday in releasing its updated outlook.

The investment bank’s economics team project first-quarter annualized growth of 4.4%, helping to power the Canadian economy to a 3% advance in 2011 — an improvement from the 2.7% gain BMO Capital Markets had forecast back in January. By year’s end, the country’s unemployment rate should drop to 7.4% from its present 7.8% level.

“The combination of low interests and high commodity prices are fuelling the domestic economy,” said Sal Guatieri, senior economist at BMO Capital Markets.

Consumer spending is expected to ease from 2010 levels, to 3%, but he said exports and a 12.8% surge in non-residential business investment would pick up the slack.

Canada also stands to benefit from an improving U.S. economy, poised to expand 3.2% in 2011, as the job market begins to turn around based on March data, he added. Monthly job gains in the 200,000-plus range could boost confidence among U.S. firms and households, translating into increased spending and investment.

Risks to the outlook include soaring oil prices, which could deliver a “serious blow” to the North American economy; Europe’s sovereign debt woes, with Portugal on the brink of an international bailout and concerns mount over Spain; and any further fallout from Japan’s earthquake and subsequent nuclear crisis.

The Bank of Canada, which issues its next rate decision on April 12, is likely to upgrade its outlook for 2011 based on the data that has emerged, Mr. Guatieri said. In its last outlook tabled in January, the central bank expected 2011 growth of 2.4%, with a first-quarter annualized advance of 2.4% — which is now well below estimates in the 4% and 5% range.

“The economy is growing much faster than the bank expected, implying less inflation-dampening slack,” Guatieri said, adding he expects the Bank of Canada to move up the timetable as to when the output gap — a measure of spare capacity — closes to mid-2012 from the previous call of the end of next year.

“The central bank will now likely move a little more aggressively on rates than planned.”

While Canada inflation remains muted, with the core rate at 0.9% as of February, Mr. Guatieri said BMO expects price increases to pick up steam in the months ahead. The central bank sets rates to achieve and maintain 2% inflation.

“We are at a low point on inflation,” he said. “The central bank can’t delay rate hikes indefinitely or it might face an inflation problem down the road.”

The European Central Bank is set to raise its benchmark rate on Thursday, even though sovereign debt worries have resurfaced, on inflation concerns.

Somebody needs to explain to me the point behind points, especially considering reward miles now expire over time.

Aeroplan has been the program in the news lately, but almost all of the so-called reward programs have some type of expiration on the points that you receive.

“It’s a standard in the industry to have these expiry policies just because the loyalty programs want to make sure their members stay active,” says Isabelle Troitzy, director of corporate communications at Aeroplan.

Back in 2006, Aeroplan announced a new program that required users to have miles expired in accounts that have had no accumulation or redemption activity in the previous 12 months. All it takes is one transaction, either using or earning miles, to keep the account active.

The bigger threat is the rules that come into effect in 2014. Miles will only have a shelf life of seven years, so miles accumulated before Jan. 1, 2007 will begin expiring.

That was enough lead time for me because I cashed in most of my points for Best Western hotel vouchers. For those snickering, that was the Paris Best Western, which might as well be the Four Seasons in Toronto based on price.

My logic was simple. The points are almost meaningless for air travel because of restrictions that make it near impossible to get flights over Christmas or March Break using my points. Goods, usually a less effective way to employ miles, made more sense.

I still have 12,578 plus points in my account. There’s plenty I could do with that.

I could use 7,500 miles to offset 3.2 tonnes of greenhouses gases — enough to drive my car for the year. According to one online website, that’s worth about $43.68.

I think I’d rather have a coupon for 40 litres of gas. Guess what? 13,000 points gets me a $100 gift certificate at Esso.

What does it all mean in real money? Based on my gas example, every point is worth .77¢ of gas. Since I get a point for every dollar I spend, that’s 0.77% return.

And this is why I don’t like points. I can go out and get a cash back that will return me 1% and I won’t even have to pay an annual fee. If you are big spender on your credit card, you might want to spend money on annual fee for a large cash back percentage.

There is a great website run by the Financial Consumer Agency of Canada (fcac-acfc.gc.ca) that compares the cards. Commissioner Ursula Menke says the Crown corporation cannot give specific advice on credit cards.

“We say consider what your needs are and choose according to what you think is important,” she says.

Patrick Sojka, chief executive and founder of rewardscanada.ca, which has been rating credit cards for nine years, says expiring points can be one more reason to go for the cash back cards that I prefer. Cash never expires.

“Expired miles is not as prevalent among programs as the inactivity rule,” said Mr. Sojka, adding reward programs have something in their contracts that allow them to change the terms of conditions. “There is benefit to cash back for sure. For the majority of Canadians, unless you are spending a huge amount on your credit card, there are better options out there like cash back or the travel anywhere cards where they give you a percentage back of your [spending] and you can book your travel how you want. You call them up and they put a credit on your card against that travel.”

How you redeem points ultimately determines the return your are getting on your points, says Mr. Sojka. If you are buying business class tickets with your points or travelling overseas often, the points might make more sense to me.

“I was running the numbers last week on a redemption for Aeroplan for a first class ticket to Asia. I looked at what it would have cost to earn on credit card and at the base level you’d get a 6% return but if you’ve done all your purchases in categories where the return doubles [something American Express offers with Aeroplan], your return could double to 12% or almost 13%,” Mr. Sojka says.

Too bad I only travel around town. I think I’ll just use my leftover reward points for some gas and stick to cards that give me cash back in the future.

Do you lock in or go variable? With mortgage rates tantalizingly low it is easy to see why so many people prefer the latter, but that could change if the rates start to rise.

Maria Dominelli, a mortgage specialist with independent mortgage brokerage firm Invis in Victoria, B.C., says deciding which route to choose depends on an individual or couple’s short-and long-term goals, the amount of debt being carried and their overall tolerance to risk.

“I always ask clients whether they can afford to ride the wave, because there will be waves,” she says. “If you cannot afford an extra couple of hundred dollars a month if rates rise, it is not for you.”

Contrary to what many might think, there is not a downside to locking in, says Laura Parsons, a mortgage expert with BMO Financial Group in Calgary.

“Do your homework and if you do lock in, do not look back,” she says. “It depends on the person and what they can tolerate. Some people can’t sleep at night because they’re worried about what the rates are going to do. In that case, of course, a variable rate would not be suitable. You may want to just know what your mortgage rate is going to be for the next five years.”

Karen Blomquist, a mortgage associate with Invis affiliate Mortgage Intelligence based in Calgary, conducts a needs analysis with her clients to “find out a little more about who they are.

“If they can’t sleep at night, what’s the point?” she asks. “[But] if someone has enough money and enough savings and risk, why wouldn’t you go variable? But if you are a little tight, you have a fear of fixed changing and you like to look at the long term, then I would say absolutely, lock in.”

For anyone who is undecided, BMO offers a service called Online MortgageMate, which involves answering six questions in order to “pick the mortgage that fits.”

“This slows someone down and helps them work through the thought process and making that decision,” Ms. Parsons says.

“After they answer the questions online it will automatically tell them that they should be in a fixed or a variable, based on the information they provide. You should be setting your payments higher in order to avoid payment shock. It is the payment shock that most people have a problem with. At least have an emergency fund that you can draw on and lump sum your mortgage in order to reduce your payments as well.”

Ms. Dominelli says that mortgage professionals have a responsibility to make sure that consumers really understand what they are getting into.

“Not all fixed rates are equal in terms of the product and not all variables are equal,” she says.

“As an example, bi-weekly does nothing for you. It gives the lender your money more often. Accelerated is when you have 26 payments. You may think you have an accelerated payment, but in reality you don’t. You have to really make sure you are signing the right document.”

For the purpose of this story, she calculated the difference between a $250,000 mortgage, amortized over 25 years at a five-year fixed rate of 3.69%, and a variable mortgage at prime minus 0.80%. In each case, the monthly payments were $1,273.38.

“Assuming the current prime rate of three per cent steadily increases to five per cent by the end of the term at the end the five-year period, the principal balance in the fixed term (assuming no extra payments) would be $216,444 versus $208,027 in the variable rate mortgage,” Ms. Dominelli says.

“That’s what makes a variable mortgage attractive, when you work out the numbers and show people the potential. However, I say that with caution because I would never show that to a highratio borrower. The reality is that this is what has happened as of late: you have had the lowest interest rate on the variable and the fixed, but going forward I don’t know if we can count on history repeating itself.”

Ms. Parsons says people are really paying attention to interest costs, and so they should. “As an example, taking five years off the amortization of a $300,000 mortgage can save you $53,000,” she says. “It’s huge.

“There is nothing wrong with requesting an amortization schedule when you get your mortgage so you know where you’re at in the first five years, 10, 15 and so on. Paying weekly, rather than monthly is a great way to battle that interest cost and also, get used to having a higher payment.”