Ontario's housing affordability declines
marginally as housing slowdown continues, says RBC Economics
TORONTO, May 18, 2006 — Ontario's
housing market witnessed a mild drop in affordability across
all classes, according to a new housing report issued today
by RBC Economics.
"While the province continues to see signs of a soft
landing for its housing market, there was still some marked
deterioration," said Derek Holt, assistant chief economist,
RBC. "Despite income gains of about $50 per month this
quarter, it was not enough to offset higher mortgage rates
and higher utility costs, which helped drive up the cost of
owning a home in Ontario."
RBC's Housing Affordability Index, which measures the proportion
of pre-tax household income needed to service the costs of
owning a home, deteriorated for the benchmark detached bungalow
in Ontario to 36.4 per cent. A standard two-storey home in
the province now requires about 41.8 per cent of household
income and a standard townhouse absorbs about 29.7 per cent.
However for the first quarter of 2006, the cost required to
maintain a standard condo jumped to 27.1 per cent of household
income.
The condo sector saw prices jump seven per cent from the
previous year, with the average price of a condo in Ontario
at about $206,453, the report noted. This price jump has enabled
condo owners to realize about 3.5 per cent gains in the value
of their units in one quarter alone. Meanwhile, the pace of
price appreciation for other housing classes appears to be
slowing. The cost of a two-storey home and a townhouse declined
for the first quarter, compared to the previous.
Residential permits and housing starts retreated in 2005
and have continued to weaken in 2006. March permits dropped
10 per cent and April starts were down 22 per cent from the
previous year, continuing to reinforce expectations of a slowdown
in Ontario's hot housing market.
In Toronto, two-storey homes saw a mild affordability improvement
as prices dipped this quarter, while other housing classes
deteriorated. The condo sector felt the sharpest affordability
erosion as a result of higher prices, higher mortgage rates
and higher monthly utility costs.
"Long-term indicators suggest that overall price increases
in Toronto are continuing to cool from the seven to 10 per
cent range over the past couple of years down to the three
to five per cent range more recently," said Holt.
In Ottawa, there was little change in affordability but all
home classes experienced some form of mild deterioration for
a second consecutive quarter. While the detached bungalow
and condo sectors both witnessed declining prices for the
first quarter of 2006, year-over-year price appreciation remained
healthy. To date, Ottawa has avoided the volatility in affordability
conditions that other regions have experienced and continues
to offer a relatively stable housing market to homebuyers,
noted Holt.
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.
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.
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.
- 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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