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British Columbia's homeownership costs continue to climb,
says RBC Economics
Relief in sight as market shows signs of cooling
TORONTO, December 20, 2006 — British Columbia's
housing affordability deteriorated for a fourth consecutive
quarter across all four types of homes, according to the new
report released today by RBC Economics.
The RBC Affordability Index, which measures the proportion
of pre-tax household income needed to service the costs of
owning a home, stood at 63.9 per cent for a detached bungalow.
Condos continue to be the most cost-effective ownership choice
with an index reading of 33.2 per cent. The index for a standard
townhouse is at 47.3 per cent and the standard two-storey
home remained the least affordable with an index reading of
69.2 per cent.
"While the previous quarter's deterioration was a result
of higher house prices and rising interest rates, the key
drivers for the third quarter were a small decline in average
monthly incomes and higher utility costs, reinforcing the
effects of rising house prices," said Derek Holt, assistant
chief economist, RBC.
RBC notes that the pace of resale activity has slowed since
April 2006 while inventories have simultaneously started to
accumulate. A falling sales-to-listings ratio combined with
softening income growth indicates that house prices are expected
to cool going forward. This calmer period will be welcome
relief for future homebuyers as current conditions have pushed
many prospective buyers out of the market.
Further erosion of housing affordability has pushed the Vancouver
market into new territory for the fourth consecutive quarter.
Average prices were up across the board, with two-storey homes
reporting the largest dollar value gain this quarter - up
nearly $12,000, to about $575,000 and absorbing 75 per cent
of median household income. The cost for a standard detached
bungalow in Vancouver required 70.1 per cent of household
income. While the market remains hot, the pace of affordability
deterioration has started to slow over the past two quarters,
signaling a turning point for the market.
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RBC's Affordability Index for a detached bungalow in Canada's
other largest cities is as follows: Toronto 43.8 per cent,
Calgary 40.9 per cent, Edmonton 33.4 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,
including Victoria. 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:
- Alberta: The third quarter marked the sharpest
broad-based quarterly deterioration in Alberta's affordability
since 1990 with erosion of 12 to 15 per cent for all home
segments. Commodity-related spin-off effects have created
ample job opportunities, driven wages up and pushed unemployment
to record lows, helping to fuel the residential housing
market. However, the market is shifting away from excess
demand and towards cooling price pressures.
- 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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