Source: The Canadian Press

Rising mortgage rates are expected to increase the cost of home ownership and keep house prices in check next year, according to a report by the Royal Bank.

Canada’s largest bank suggested increasing household income and an improved job market will balance supply and demand.

“We don’t see any kind of imbalances out there that need to be corrected or rectified over the next year or so, so we think that probably will translate into modest everything,” RBC senior economist Robert Hogue said.

“In the near term, possibly some downward pressure on prices, but then stabilizing and moving up modestly again.”

Canadian fixed-rate mortgages spiked up in the spring, but have since seen a steady decline, helping increase affordability for home buyers this year. Even the Bank of Canada, which raised its key rate and with it variable rate mortgages and lines of credit, has put additional rate hikes on hold for now.

But rates are expected to resume their march higher from near-record lows next year. That would increase the cost of borrowing money to buy, renovate or furnish a home.

In the third quarter, the Royal Bank said the cost of home ownership was lower, thanks to lower mortgage rates and softer house prices since earlier in the year.

The bank’s affordability measure shows how much pre-tax income is required to pay a mortgage, property taxes and utilities for the home.

The bank said all the provinces saw improvements in housing affordability during the quarter, especially British Columbia.

The report suggested that housing affordability improved at the national level by between 1.4 and 2.5 percentage points from the second quarter, depending on the type of property, but remained above the long-term average.

However, the cost of home ownership in British Columbia remained high by historical standards — following increases that began in the first quarter of 2009.

A detached bungalow in British Columbia consumed 59% of pre-tax income, while two-storey homes ate up 67.5% of income and condos required 32.9% of pre-tax income — all above the national average.