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Special Reports

 

Housing affordability improves while recession weighs on housing markets across Canada, says RBC Economics

TORONTO, April 16, 2009 — While the Canadian housing market has felt the strain of the contraction in the domestic economy since the fourth quarter of 2008, improved housing affordability is mitigating some of the stress felt by home buyers, according to the latest housing report released today by RBC Economics.

"Declining consumer confidence amid dimming employment prospects and the turmoil in credit markets have had a predictable impact on Canada's housing markets - home sales have dropped; prices have given into intense downward pressure; and residential construction has slowed substantially," said Robert Hogue, senior economist, RBC. "As the recession rages on with the all-important spring season upon us, the ongoing cyclical correction will put the entire housing sector to the test in coming months."

However, while the pain will likely persist for many homeowners and industry participants, there are encouraging signs on the affordability front. The sharp deteriorating trend in RBC's affordability measures from mid-2004 to early 2008 has reversed in the past year.

The RBC Affordability measure captures the proportion of pre-tax household income needed to service the costs of owning a home. During the fourth quarter of 2008, the RBC Affordability measure at the national level improved across all housing segments, as the detached bungalow moved to 43.7 per cent, the standard townhouse to 35.4 per cent, the standard condo to 30.1 per cent, and the standard two-story home to 50 per cent.

Compared with a year earlier, RBC's measures improved 2.3 to 3.5 percentage points due primarily to lower lending rates. According to the report, lower mortgage rates account for the largest portion of the improvement in almost all major urban areas in Canada. Rising family income also contributed positively across the country. Only in Calgary, Edmonton and Vancouver was price a constructive factor in the year-over-year change, though the influences of price on affordability in the rest of the country grew in recent quarters.

"Going forward, low mortgage rates and persisting downward pressure on housing prices will continue to help repair affordability although slowing income growth will act as a restraint," added Hogue.

RBC's Affordability measure for a detached bungalow for Canada's largest cities is as follows: Vancouver 70.3 per cent, Toronto 51.3 per cent, Calgary 42.7 per cent, Ottawa 42.7 per cent and Montreal 39.4 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 condominium. 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.

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.

- 30 -

For more information, please contact:
Robert Hogue, RBC Economics Research, 416-974-6192
Jackie Braden, Media Relations, RBC, 416-974-2124

 

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04/16/2009 08:39:49