RBC Economics says Canadian housing markets entering cyclical
TORONTO, December 8, 2008 — Canada no longer
appears to be immune to a generalized housing downturn though
housing affordability conditions across all segments have
started to improve, according to the latest housing report
released today by RBC Economics.
"While the Canadian housing sector is entering a cyclical
downturn, the risk of experiencing a U.S.-style meltdown is
remote," said Robert Hogue, senior economist, RBC. "Many
of the factors that triggered the collapse in the United States
are either absent or of much lower significance on this side
of the border."
The report notes that as a sluggish Canadian economy threatens
income growth and erodes consumer confidence, the following
factors will mitigate some of the downside risks to the housing
sector: the sub-prime business remains marginal; banks are
stable and lending; households are generally not overstretched
financially; and speculation in the housing market is more
subdued. "These factors should provide enough of a foundation
to prevent housing markets from spiraling down even as the
Canadian economy slips into recession," added Hogue.
The RBC Affordability measure is the proportion of pre-tax
household income needed to service the costs of owning a home.
Across the country, the standard condo remained the most affordable
housing type requiring 31.4 per cent of pre-tax household
income in the third quarter of 2008. A standard townhouse
was next at 36.9 per cent, followed by a detached bungalow
at 45.7 per cent, while a standard two-storey home remained
the least affordable housing type at 52 per cent.
According to the report, housing affordability deteriorated
significantly during the boom of the past several years, mainly
as price increases outpaced family income growth. At the national
level, affordability reached its worst levels in late 2007
since early 1990s. At the end of 2007 the red-hot Alberta
housing market began to slide, followed by British Columbia
in early 2008, and now Saskatchewan and Ontario have joined
the weakening trend.
Issues of affordability are coming to the forefront in this
weakening economic climate. In fact, most of the market corrections
taking place in British Columbia, Alberta and Saskatchewan
can be traced to very poor affordability conditions. While
there has been some improvement since the beginning of the
year, RBC's Affordability measures generally remain above
their long-run averages across Canada. Relative to historical
norms, markets in British Columbia, Saskatchewan and Alberta
are the least affordable in the country.
Among Canada's largest cities, RBC's Affordability measure
for a detached bungalow is as follows: Vancouver 74.8 per
cent, Toronto 53.3 per cent, Calgary 47.3 per cent, Ottawa
43.3 per cent and Montreal 40.4 per cent.
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
In addition to major urban centres in Canada, the report
includes 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.
Highlights from across Canada:
- British Columbia: In the last two quarters, affordability
conditions have started to improve. The province's housing
markets are entering a correction phase that will see prices
decline, reversing recent gains.
- Alberta: Housing conditions have softened since
prices peaked back in 2007. In the third quarter of 2008,
further price declines in most housing segments contributed
to improved affordability.
- Saskatchewan: After reaching its lowest level of
affordability ever, the province's housing sector is feeling
the downside effects of a frenzied market. Skyrocketing
prices significantly overstepped household incomes, which
is anticipated to push the housing sector into a correction
phase in 2009.
- Manitoba: Well-positioned to weather the storm,
the province's housing market is nonetheless expected to
cool in 2009 amid mounting economic uncertainty.
- Ontario: Housing markets softened in the third
quarter as several regions across the province reported
notable price declines and weakening re-sale activity -
evidence that the sector can no longer resist the downdraft
of a souring provincial economy.
- Quebec: Affordability conditions improved in the
third quarter but economic storm clouds are darkening the
housing market outlook. Relatively strong fundamentals should
help limit damages during the downturn.
- Atlantic region: Rapid price increases over the
past two years have eroded affordability conditions in the
region. St. John's, Saint John and Halifax are currently
among Canada's housing hotspots.
The full RBC Housing Affordability 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:
Robert Hogue, Economics, RBC, 416-974-6192
Stephanie Lu, Media Relations, RBC, 416-974-5506