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Alberta's homeownership costs continue to climb, says RBC
Economics
TORONTO, September 19, 2006 — The cost of owning a
home in Alberta continued to rise faster than incomes for
the second quarter of 2006, driven entirely by higher house
prices and mortgage rates, according to a new report released
today by RBC Economics.
"Alberta experienced one of the sharpest deteriorations
in housing affordability across the country this past quarter,"
said Derek Holt, assistant chief economist, RBC. "While
incomes are growing at a fairly rapid five per cent annual
pace, house price growth is several multiples faster."
RBC notes that Alberta's home prices have surged dramatically,
up roughly 30 per cent year-over-year in all classes. The
housing market remains extremely tight, with demand well above
supply. At the midpoint of 2006, sales were up 22 per cent
while new listings were down four per cent compared to last
year's levels.
The RBC Affordability Index, which measures the proportion
of pre-tax household income needed to service the costs of
owning a home, stands at 21.5 per cent for a standard condo
in Alberta, the most affordable housing type. A standard townhouse
is next at 24.3 per cent followed by a detached bungalow at
33 per cent. A standard two-storey home remains the least
affordable with an index reading of 36.7 per cent.
"This situation of excess demand has made the sales-to-new
listings ratio quite advantageous for sellers," added
Holt.
While housing affordability continued to erode in Calgary
and Edmonton, those cities are still far more affordable than
Vancouver, Toronto, and Montreal relative to local incomes.
In fact, Calgarians now enjoy the highest average before-tax
household income compared to other major Canadian cities,
while Edmontonians rank fourth behind Calgary, Ottawa, and
Toronto. In Calgary, 21.2 per cent of household income is
needed to service the costs of owning a standard condo, thus
the most affordable housing type. A standard townhouse is
next at 26.2 per cent followed by a detached bungalow at 34.6
per cent. A standard two-storey home remains the least affordable
with an index reading of 36.2 per cent.
Edmonton also witnessed across-the-board deteriorations in
housing affordability this quarter. Annual price gains of
between 24 and 40 per cent, combined with rising mortgage
rates, have overwhelmed the beneficial impact of higher incomes.
RBC's Affordability Index for a detached bungalow for Canada's
largest cities is as follows: Vancouver 68.2 per cent, Toronto
43.9 per cent, Montreal 36 per cent and Ottawa 30.3 per cent.
Also included in the report is a look at mortgage carrying
costs relative to incomes 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, the most comprehensive,
multiple housing class report, 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: Housing affordability continued
to erode in every housing segment. Bungalow and townhome
markets are setting new records while condos and standard
two storey homes lie close to 1990 records. Surging prices
and rising interest rates are to blame, despite healthy
income growth of 4.6 per cent compared to a year ago.
- Saskatchewan: For a third consecutive quarter,
Saskatchewan's housing affordability deteriorated in every
housing class. Solid wage gains, coupled with fairly average
house price growth, have helped keep housing conditions
affordable. Saskatchewan remains one of the most affordable
provinces.
- Manitoba: Manitoba's two-storey houses saw the
sharpest deterioration in affordability, as prices were
up 21 per cent compared to last year. Detached bungalows
and condos remain the best options for prospective home
buyers as prices declined from the previous quarter.
- Ontario: Despite weakening price gains in Ontario's
housing market, affordability deteriorated for a third straight
quarter. The growth of household income failed to keep pace
with higher mortgage rates and rising utilities costs.
- Quebec: Most of Quebec's housing market is in the
midst of an orderly slowdown as prices grow much slower
than the double-digit pace of earlier years. Three out of
four housing segments deteriorated in affordability this
quarter, with Quebec's condo market the exception.
- Atlantic region: Atlantic Canada's housing affordability
continued its downward descent for the fourth consecutive
quarter. Big jumps in house prices, higher mortgage rates
and a four per cent increase in utilities were among the
main forces behind the decline, with townhouses showing
the strongest deterioration of all.
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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