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Canada's housing affordability erodes, along distinct regional
lines, says RBC Economics
Western Canada continues to heat up while central Canada
cools
TORONTO, September 19, 2006 — Canada's housing affordability
deteriorated for a third consecutive quarter, according to
the latest Housing Affordability Index released today by RBC
Economics.
According to RBC, Alberta and British Columbia had the sharpest
erosions in affordability driven largely by double-digit annual
price gains. However, Alberta's soaring price gains still
leave the province below past affordability stress points.
Housing in Calgary and Edmonton remains more affordable than
in Toronto, Montreal and Vancouver relative to incomes. Vancouver,
however, is entering uncharted waters as it sets new records
for poor housing affordability in two out of four classes,
and the other two will likely do so later this year.
"Faster growth in house prices, the weakest annual growth
in household incomes since the first quarter of 2005 and slightly
higher interest rates have all combined to erode housing affordability
in Canada," said Derek Holt, assistant chief economist,
RBC. "While there was a nationwide deterioration, the
regional divide in housing markets intensified this quarter
with distinct trends emerging out west compared to the rest
of the country, particularly central Canada."
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 27.5 per cent. A standard townhouse is next
at 31.4 per cent followed by a detached bungalow at 39.4 per
cent. A standard two-storey home is still the least affordable
housing type in the country with an index reading of 44.8
per cent.
RBC notes that central Canada's housing market is cooling.
Quebec's condo market is the only market to have improved
in housing affordability this quarter because of a drop in
condo prices in the Montreal area. Housing affordability deteriorated
for every other housing segment in Ontario and Quebec. Ontario's
deterioration, however, had to do with interest rate increases,
and electricity rate hikes that more than offset the impact
of falling natural gas prices on utilities' costs. As a result,
Ontario's pace of house price growth has noticeably slowed.
Saskatchewan and Manitoba also witnessed affordability deteriorations
whereas Atlantic Canada's eroding housing affordability is
being disproportionately driven by Nova Scotia, where a listings
shortage is sparking price gains in a seller's market.
RBC 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, 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:
- 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.
- 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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