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Housing affordability to improve in 2008, says RBC Economics
TORONTO, January 24, 2008 — After homeownership
costs climbed steadily through 2007, nationwide housing affordability
should to start to improve in 2008, according to the latest
Housing Affordability report released today by RBC Economics.
"Almost every house class in every province and major
city saw affordability deteriorate last year," said Derek
Holt, assistant chief economist, RBC. "Unlike the late
1980s and early 1990s when both unemployment rates and interest
rates pushed into double digits and led to declining affordability,
the prime culprit this time around has been a long string
of house price gains that have outstripped income gains."
The RBC Affordability report measures the proportion of pre-tax
household income needed to service the costs of owning a home.
In the most recent quarter, the affordability of all four
housing classes eroded, with the exception of slight improvements
in Calgary's condos and Edmonton's detached bungalows. Across
the country, the standard condo remained the most affordable
housing type, requiring about 30 per cent of pre-tax household
income. A standard townhouse was next at 34 per cent, followed
by a detached bungalow at 42 per cent while a standard two-storey
home remained the least affordable housing type at 47 per
cent.
According to RBC, new record highs for the amount of household
income going towards homeownership costs are being set across
most housing classes in British Columbia, Alberta and Saskatchewan.
While their provincial economies are strong, the gains have
been increasingly leveraged. The Saskatchewan-Manitoba border
remains the dividing line between over-heated housing markets
in Canada: everything from Manitoba eastward remains well
below previous record highs for affordability set in the late
1980s and early 1990s.
Canada's rate of resale house price appreciation is likely
to slow to between five and seven per cent in 2008. New home
construction volumes and income growth are also expected to
decline. The popular five-year mortgage rate is anticipated
to drift about 50 to 75 basis points lower by year-end, and
the Bank of Canada's overnight rate is forecast to drop by
a further 100 basis points.
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RBC's Affordability measures for a detached bungalow for
Canada's largest cities are as follows: Vancouver, 72 per
cent, Calgary, 46 per cent, Toronto, 46 per cent, Montreal,
37 per cent and Ottawa, 32 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, 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: Housing affordability reached
into uncharted territory late last year as affordability
deteriorated to its worst level since 1985 when RBC started
tracking conditions. Modest improvements are expected for
2008.
- Alberta: Many prospective homebuyers were priced
out of the market last year as housing affordability conditions
eroded, pushing markets into unsustainable territory. With
a softer influx of migrants, the housing market is poised
for a significant slowdown and improved affordability.
- Saskatchewan: Housing affordability deteriorated
sharply across all home segments last year as a sudden influx
of migrants strained existing housing capacity. In 2008,
housing affordability conditions are expected to stabilize.
- Manitoba: The province's housing market is still
running at full tilt. Affordability should improve as rising
costs start to weigh on demand and help rebalance the market
in 2008.
- Ontario: Income growth is expected to cool amidst
toughening economic conditions in the province. On balance,
our affordability forecast in 2008 points to overall improving
conditions as mortgage rates drift lower and price gains
moderate even further.
- Quebec: Housing affordability continued to deteriorate
last year. Stable and modest price gains combined with some
mortgage rate relief this year should translate into an
overall improvement in affordability conditions across all
four home segments in 2008.
- Atlantic region: Strong house price gains and rising
mortgage rates chipped away at affordability conditions
in 2007. In 2008, Atlantic Canada is expected to move onto
a softer growth trajectory as housing construction activity
gears down.
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:
Derek Holt, RBC Economics, 416-974-6192
Amy Goldbloom, RBC Economics, 416-974-0579
Jackie Braden, RBC Media Relations, 416-974-2124
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