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Alberta's housing affordability sharply erodes, says RBC
Economics
Rapidly soaring house prices drive deterioration
TORONTO, December 20, 2006 — Alberta's housing
affordability has deteriorated at a fast and furious pace
over the past four quarters, according to a new report released
today by RBC Economics.
"The third quarter marked the sharpest broad-based quarterly
deterioration in Alberta's affordability since 1990 with erosion
between 12 and 15 per cent for all home segments," said
Derek Holt, assistant chief economist, RBC. "The province's
commodity-related spin-off effects, coupled with ample job
opportunities that are driving wages up and pushing unemployment
to record lows, continue to fuel the residential housing market
amidst signs of cooling price pressures."
The RBC Affordability Index, which measures the proportion
of pre-tax household income needed to service the costs of
owning a home, stands at 37.2 per cent for a detached bungalow.
The condo market was hit with the sharpest erosion to affordability,
with an index rating of 24.8 per cent in the third quarter
of 2006. A standard townhouse is at 27.4 per cent and a standard
two-storey home remains the least affordable with an index
reading of 41.2 per cent.
Alberta's housing market is gradually shifting away from
excess demand as the sales-to-listings ratio sits at 0.66,
down from 1.04 in January. As demand cools, house prices will
likely ease, however it may also stimulate buyers as the economy
remains in decent shape going into 2008.
According to the report, deteriorating affordability in Calgary
and Edmonton has been both severe and rapid. Calgary's affordability
eroded about 20 per cent across all home classes in just one
quarter.
"While income growth for the province sits at about
five per cent this year, qualifying incomes for mortgages
grew by about 45 per cent, suggesting that the boom is not
supported just by higher income growth as in other provinces,"
said Holt. "We expect prices to cool as incomes try to
keep pace, demand slows, and the number of listings increases."
RBC's Affordability Index for a detached bungalow in Canada's
other largest cities is as follows: Vancouver 70.1 per cent,
Toronto 43.8 per cent, Montreal 36 per cent and Ottawa 30.8
per cent.
Also included in the report are housing affordability conditions
for a broader sampling of select cities across the country.
For these select 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.
Highlights from across Canada:
- British Columbia: Housing affordability deteriorated
for a fourth consecutive quarter across all four types of
homes driven by a small decline in average monthly incomes,
higher utility bills, and climbing house prices.
- Saskatchewan: An increase in house prices, combined
with a slight decline in household income this past quarter,
led to a marginal deterioration in affordability. However,
if rates continue to remain stable and price growth levels
off, affordability is expected to improve across all sectors
in 2007.
- Manitoba: For the third quarter of 2006, Manitoba
saw the strongest overall improvement in affordability for
three out of four housing classes. It remains the most affordable
province for townhouses and condos even though the townhouse
sector witnessed a marginal deterioration.
- Ontario: Dropping off from the growth peaks in
house prices and incomes seen several quarters ago, Ontario's
housing market has now cooled to more moderate levels. This
cooling has been slow and steady, and should allow for homeowners
to retain the bulk of their home equity gains going forward
into 2007 and 2008.
- Quebec: Housing affordability erosion was less
severe this quarter as income gains and utility relief managed
to outpace house price growth. The level of sales is expected
to continue to cool, while new home listings are expected
to increase and price growth to slow to a gradual pace across
the market.
- Atlantic region: Affordability remained relatively
unchanged thanks to house price growth leveling off and
cooling household income gains. Following the trend taking
place in other parts of the country, the pressures on Atlantic
Canada's housing market showed signs of balancing for the
second half of 2006.
The full RBC Housing Affordability Index report is available
online, as of
8 a.m. E.S.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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