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Housing affordability sharply deteriorates across Canada,
says RBC Economics
Rising home prices, mortgage rates, utilities and taxes
drive erosion
TORONTO, September 12, 2007 — Homeownership
costs continued to climb steadily with Canada's housing affordability
sharply eroding across all four housing types in the second
quarter, according to the latest Housing Affordability report
released today by RBC Economics.
"In the second quarter, Canada's housing affordability
experienced one of the largest and most broadly based quarterly
deteriorations since the mid-1990s," said Derek Holt,
assistant chief economist, RBC. "Higher house prices,
mortgage rates, utilities and property taxes all combined
to drive the country-wide deterioration."
The RBC Affordability report measures the proportion of pre-tax
household income needed to service the costs of owning a home.
All four housing classes eroded -- the standard condo remained
the most affordable during the quarter, requiring about 29
per cent of income. A standard townhouse was next at 33 per
cent, followed by a detached bungalow at 41 per cent. A standard
two-storey home remained the least affordable housing type
at 46 per cent.
According to RBC, the effects were extensive as affordability
eroded in every single housing class, in every province and
in every major city across Canada. RBC notes that Saskatchewan,
Alberta and British Columbia witnessed the most significant
erosion in housing affordability. Affordability deteriorated
by approximately 20 per cent across each of the home segments
in Saskatchewan, marking the worst quarterly deterioration
on record. Over the past couple of years, Saskatoon, Edmonton
and Calgary have suffered the largest deteriorations of all
Canadian cities. Housing market conditions from Manitoba eastward
are relatively stable compared to the western provinces.
Holt noted that the arrival of extended amortization mortgages
has changed the dynamics of the housing market. The new found
ability to extend amortization up to forty-year mortgages
temporarily offsets affordability pressures by rolling the
clock back to late 2005 and early 2006 affordability conditions.
RBC's Affordability measure for a detached bungalow in Canada's
largest cities is as follows: Vancouver 71 per cent, Toronto
45 per cent, Calgary 45 per cent, Montreal 36 per cent and
Ottawa 31 per cent.
Also included in the report are housing affordability conditions
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 incomes into account.
The Housing Affordability measure, 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 reading, the more costly it is to afford a home. For example,
an Affordability reading 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 eroded further across
the province as rising mortgage rates and house prices squeezed
out prospective home-buyers. The relief seen in the two-storey
home segment earlier this year was reversed this quarter
with all four home segments witnessing deteriorations in
affordability.
- Alberta:
Housing affordability deteriorated significantly in the
second quarter of 2007. Alberta's house prices have been
growing at a pace well above incomes and in a short time
have created stressed affordability conditions.
- Saskatchewan:
The Saskatchewan housing market suffered its worst ever
quarterly deterioration of affordability on record. At the
start of the year, the influx of people caught the housing
supply off guard, forcing affordability to deteriorate.
This momentum continued into the second quarter as the pace
of annual price gains soared into the double digit range.
- Manitoba:
With house price gains picking up pace and mortgage rates
continuing to rise, the province's housing affordability
has deteriorated for a second straight quarter. Manitoba
saw the greatest quarterly decline in affordability in more
than a year.
- Ontario:
After modest improvements earlier in the year, Ontario's
housing affordability deteriorated sharply in the second
quarter. A combination of higher house prices, rising mortgage
rates and increasing utility costs have forced a substantial
deterioration in affordability across all housing classes.
- Quebec:
Despite only modest increases in house prices this past
quarter, climbing mortgage rates, utilities and taxes drove
an erosion in Quebec's housing affordability. However, the
province's decent economic fundamentals still support housing
markets, with job growth at a healthy two per cent rate
this year and incomes keeping pace with gains in house prices.
- Atlantic
region: An environment of rising mortgage rates
and strong price gains created pricier second quarter housing
conditions in Atlantic Canada. While each of the housing
segments witnessed a significant affordability deterioration,
it was the two-storey and condo segments that saw the sharpest
erosion.
The full RBC Housing Affordability 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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