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Ontario's housing market levels off, says RBC Economics
TORONTO, December 20, 2006 — Ontario's housing
affordability conditions flattened out in the third quarter,
epitomizing the soft landing that has taken place across most
of central and eastern Canada, according to a new housing
report issued today by RBC Economics.
"Dropping off from the peaks in house prices and income
gains seen over previous years, Ontario's housing market has
now cooled," said Derek Holt, assistant chief economist,
RBC. "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."
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 slightly for the
benchmark detached bungalow to 37.3 per cent and for the standard
two-storey home to 43.2 per cent. The cost required for maintaining
the standard townhouse and standard condo improved slightly
to 30.4 per cent and 27.9 per cent respectively.
The report noted that while housing affordability deteriorated
slightly for the detached bungalow and two-storey home, and
improved for condos and townhouses, all of the changes were
within a one per cent (plus or minus) range. Over the past
year, the price of a condo rose by roughly $17,000 to around
$212,783; giving condo owners the strongest dollar gains of
any housing class. Even with this increase, condos continue
to remain the most affordable option in Ontario.
Housing affordability in Toronto finally improved for three
out of four housing classes. A decline in house prices, lower
monthly utility bills, modest income growth and a peak in
mortgage rates combined to allow detached bungalows, townhouses
and condos to see improved affordability for the third quarter
of 2006 compared to the previous quarter. Compared to last
year, two-storey home prices were flat, bungalow and townhouse
prices were up slightly, but condos still posted a seven per
cent gain.
"Toronto experienced a turning point in mid-2006 when
house prices started to dip and income growth slowed down,
transitioning into more balanced territory," said Holt.
For a fourth straight quarter, all housing classes in Ottawa
experienced a mild deterioration. Cooling house price growth
allowed the market to slowly decline, although condos saw
the strongest deterioration in affordability, rising to 21.8
per cent of household income. However, Ottawa's affordability
remains relatively stable and has managed to avoid the volatile
swings seen in other markets across the country. Ottawa still
boasts the most affordable homes among all of the big cities
tracked in Canada, noted Holt.
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.
The report also looked at mortgage carrying costs relative
to incomes for a broader sampling of select cities across
the province, including Hamilton, London, Kitchener, Windsor,
St. Catharines, Brantford and North Bay. For these select
cities, RBC has used a narrower measure of housing affordability
that only takes mortgage payments relative to income into
account.
RBC's Affordability Index for a detached bungalow in Canada's
other largest cities is as follows: Vancouver 70.1 per cent,
Calgary 40.9 per cent, Edmonton 33.4 per cent, Montreal 36
per cent and Ottawa 30.8 per cent.
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.
- 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.
- 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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