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British Columbia's housing market entering uncharted waters
as affordability weakens further, says RBC Economics
TORONTO, September 19, 2006 — British Columbia's housing
affordability continued to erode sharply for the third consecutive
quarter, according to the new report released today by RBC
Economics.
"B.C.'s 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 as the province's housing market enters
uncharted waters," said Derek Holt, assistant chief economist,
RBC. "Surging prices and rising interest rates are to
blame, despite healthy income growth of 4.6 per cent compared
to a year ago."
According to RBC, B.C.'s condo market remains the only segment
where the amount of recommended qualifying income in applying
for a mortgage is in line with median household income at
about $52,000. Qualifying incomes in all other segments are
well above median household incomes.
The RBC Affordability Index, which measures the proportion
of pre-tax household income needed to service the costs of
owning a home, stood at 62.2 per cent for a detached bungalow.
Condos continue to be the most cost-effective ownership choice
with an index reading of 32.3 per cent. Even though condos
are by far the most affordable option in B.C., it is still
the most expensive condo market in the country. The index
for a standard townhouse is at 46 per cent and the standard
two-storey home remained the least affordable with an index
reading of 67.4 per cent.
Vancouver's housing affordability significantly deteriorated
in every class with a two-storey home still leading the country
as the most expensive option in Canada. The average price
for a two-storey home climbed to $563,397 with house price
growth remaining in double digits.
Some relief, however slight, may be coming as price growth
appears to be flattening. "With healthy wage gains not
maintaining enough upward momentum to absorb rapidly rising
prices, we expect the current pace of price appreciation to
begin to moderate," added Holt. "In fact, sales
have actually retreated for the last three consecutive months
while new listings have grown."
RBC's Affordability Index for a detached bungalow for Canada's
largest cities is as follows: Toronto 43.9 per cent, Montreal
36 per cent, Calgary 34.6 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:
- Alberta: Alberta experienced one of the sharpest
deteriorations in housing affordability across the country
last quarter. While incomes are growing at a fairly rapid
five per cent annual pace, house price growth is multiples
faster.
- 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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