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