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Cooling prices in Ontario's housing market
not enough to improve affordability, says RBC Economics
TORONTO, September 19, 2006 — Despite
weakening price gains in Ontario's housing market, affordability
still declined for a third straight quarter, according to
a new housing report issued today by RBC Economics.
"The soft landing in Ontario's housing market that we
have predicted over the past few quarters is continuing to
unfold," said Derek Holt, assistant chief economist,
RBC. Nevertheless, the growth of household income failed to
keep pace with higher mortgage rates and rising utilities
costs so affordability still weakened.
According to the report, mortgage carrying costs deteriorated
everywhere including Toronto, Ottawa, Hamilton, London, Kitchener,
Windsor, St. Catharines, Brantford, and North Bay.
RBC's Housing Affordability Index for Ontario, which measures
the proportion of pre-tax household income needed to service
the costs of owning a home, deteriorated for the benchmark
detached bungalow to 37.2 per cent, a standard two-storey
home requiring about 42.9 per cent of household income, a
standard townhouse absorbing 30.4 per cent and the cost required
to maintain a standard condo moved up to 28 per cent of household
income.
Prices for detached bungalows, two-storey homes and townhouses
have levelled off and are growing at three to five per cent
annually. While condos still remain the most affordable option
in Ontario, they have experienced the sharpest deterioration
in affordability of any class this quarter. Over the past
year, condo prices have gained more than 10 per cent, reversing
several quarters of weaker gains.
In Toronto, all housing classes witnessed worsened affordability.
Every class saw prices jump in the spring and early summer
compared to the previous quarter. However, year-over-year
price gains are slowing down into the low single digits for
bungalows and townhouses, and prices are down only slightly
for two-storey homes. Condos are experiencing the reverse
with gains accelerating into the 10.6 per cent range, compared
to a year ago.
"Toronto's housing market is beginning to cool down
as higher interest rates and rising utilities costs are partly
responsible for the slowdown as well as the deterioration
in affordability," said Holt.
Over the past decade, Ottawa has seen little change in housing
affordability and for another straight quarter all housing
classes experienced deteriorations. With a market that is
well-balanced between buyers and sellers, price gains have
been relatively modest, averaging in the zero to five per
cent range for each housing class. Rising mortgage rates,
increases in utilities costs and higher house prices were
offset by steady income growth for the second quarter. With
the exception of a two-storey home, qualifying incomes for
buying a bungalow, townhouse or condo sit comfortably below
the median required.
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.
RBC's Affordability Index for a detached bungalow for Canada's
largest cities is as follows: Vancouver 68.2 per cent, Montreal
36 per cent, Calgary 34.6 per cent and Ottawa 30.3 per cent.
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.
- 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.
- 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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