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Special Reports


RBC Economics says Canadian housing markets entering cyclical downturn

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 pre-tax income.

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.

- 30 -

For more information, please contact:
Robert Hogue, Economics, RBC, 416-974-6192
Stephanie Lu, Media Relations, RBC, 416-974-5506


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Housing Trends And Affordability
(pdf, 8 pages, 319kB)
British Columbia

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12/08/2008 08:35:50