Canada's housing affordability continues
to deteriorate, says RBC Economics
TORONTO, May 18, 2006 — Canada's
housing affordability further deteriorated in the first quarter
of 2006 according to the latest Housing Affordability Index
released today by RBC Economics.
"The cost of homeownership in Canada, including financing,
utilities and property taxes, rose at a faster pace than incomes
for the second consecutive quarter," said Derek Holt,
assistant chief economist, RBC. "While property taxes
and utilities increased this past quarter, most of the deterioration
in affordability was driven by a surge in home prices and
rising mortgage rates."
The RBC Affordability Index measures the proportion of pre-tax
household income needed to service the costs of owning a home.
The most affordable housing class remains the standard condo,
with an index of 27.4 per cent. A standard townhouse is next
at 31 per cent followed by a detached bungalow at 38.8 per
cent. A standard two-storey home is still the least affordable
housing type with an index reading of 44.5 per cent.
According to RBC, new homes now represent about 32 per cent
of all homes sold in Canada, compared to about 42 per cent
in the late 1980s. At the same time, new home prices have
generally been more stable than resale prices as evidenced
by the pace of new and resale price gains in recent years.
RBC warns this trend is changing as new home prices have begun
to accelerate, though at a much slower pace than the late
1980s, when both new and resale prices were rising at comparably
high rates.
"The continued upward pace of resale prices and mortgage
rates into the second quarter of 2006 does not bode well for
near-term affordability," added Holt.
RBC's Affordability Index for a detached bungalow for Canada's
largest cities is as follows: Vancouver 64.4 per cent, Toronto
41.7 per cent, Calgary 32.7 per cent, Montreal 34.9 per cent
and Ottawa 28.9 per cent.
Across the country, housing affordability declined with British
Columbia's market deteriorating the most. Being at or near
its highest point on record in every house class except standard
condominiums, B.C.'s housing market continues to be driven
by resale activity.
Also included in the report are housing affordability conditions
for a broader sampling of smaller cities across the country.
For these smaller cities, RBC has used a narrower measure
of housing affordability that only takes mortgage payments
relative to income into account.
The Housing Affordability Index, which RBC has compiled since
1985, is based on the costs of owning a detached bungalow,
a reasonable property benchmark for the housing market. Alternative
housing types are also presented including a standard two-storey
home, a standard townhouse and a standard condo. The higher
the index, the more costly it is to afford a home. For example,
an Affordability Index of 50 per cent means that homeownership
costs, including mortgage payments, utilities and property
taxes, take up 50 per cent of a typical household's monthly
pre-tax income.
Highlights from across Canada:
- British Columbia: British Columbia's affordability
further deteriorated and remained the least affordable province
in which to own a home. Despite eroding affordability, B.C.'s
economy continues to exhibit strength.
- Alberta: The cost of owning a home in Alberta continued
to increase, as rapidly rising house prices and mortgage
rates outpaced strong income and employment growth for the
second consecutive quarter.
- Saskatchewan: Saskatchewan's affordability declined
across all housing classes for a second consecutive quarter.
Higher utility costs and rising mortgage rates led to the
deterioration, despite decent income growth.
- Manitoba: Solid housing price increases and higher
mortgage rates were to blame for the overall deterioration
in Manitoba's housing market with affordability declining
for a third consecutive quarter.
- Ontario: While Ontario's housing market continues
to see signs of a soft landing, housing affordability declined.
Income gains of about $50 per month this quarter were not
enough to offset higher mortgage rates and higher utility
costs.
- Quebec: Affordability continued to deteriorate
for a second consecutive quarter. The sales-to-listings
ratio has been on a gradual decline over the past year implying
that our widely anticipated cooling of Quebec's housing
market is now underway.
- Atlantic region: Atlantic Canada continues to experience
a slow and steady deterioration in housing affordability.
Moderate wage gains in the region were not able to offset
the higher monthly payments necessary to maintain a house.
The full RBC Housing Affordability Index report is available
online, as of
8 a.m. E D.T. today at www.rbc.com/economics/market/pdf/house.pdf.
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For more information, please contact:
Derek Holt, RBC Economics, 416-974-6192
Jackie Braden, RBC Media Relations, 416-974-2124
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