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Improved affordability helps spur Canadian housing market,
says RBC Economics
Every major city in Canada enjoying a housing market resurgence
TORONTO, July 8, 2009 — Home affordability
in Canada recorded some of the biggest quarterly improvements
on record in the first quarter of the year, with aggressive
economic policy and softening home prices drawing buyers back
into the market, according to the latest housing report released
today by RBC Economics.
"With the turmoil in financial markets partially subsiding
and the flow of credit increasing, home resale activity has
rallied impressively since the late-winter," said Robert
Hogue, senior economist, RBC. "What's most impressive
is how widespread this rebound has been, with all major cities
in Canada experiencing a revival."
Declining costs of home ownership during the last year were
driven by significant cuts in mortgage rates along with the
federal government taking an active role in supporting the
mortgage securities market. In the first quarter, monthly
payments on a typical detached bungalow in Canada had decreased
by close to 17 per cent from a year earlier.
The RBC Housing Affordability measure captures the proportion
of pre-tax household income needed to service the costs of
owning a home. During the first quarter of 2009, the RBC Affordability
measure at the national level improved across all housing
segments, as the benchmark detached bungalow moved to 39.4
per cent, the standard townhouse to 31.9 per cent, the standard
condo to 27.1 per cent and the standard two-storey home to
44.7 per cent respectively.
The report found that rates of housing affordability improved
at the national level from 2.8 percentage points for standard
condominiums and 5.0 percentage points for two-storey homes,
marking the third consecutive quarterly decline in home ownership
costs.
"Housing markets generally appear to be on the mend
in Canada but the road to full recovery still has obstacles,"
added Hogue. "With property values stabilizing and the
effect of the steep drop in mortgage rates likely behind us,
further improvement in affordability will depend on greater
gains in family income. Those gains will be dictated by the
speed of the economic recovery expected during the second
half of this year."
RBC's Affordability measure for a detached bungalow for Canada's
largest cities is as follows: Vancouver 62.6 per cent, Toronto
45.9 per cent, Ottawa 39.1 per cent, Montreal 36.5 per cent
and Calgary 35.1 per cent.
The property benchmark for the Housing Affordability measure,
which RBC has compiled since 1985, is based on the costs of
owning a detached bungalow. 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.
Highlights from across Canada:
- British Columbia: In the first quarter, housing
affordability in B.C. showed the sharpest improvements since
1991. Sales of existing homes have picked up vigorously
since the November-January lows, prices appear to be leveling
off and more balanced supply and demand conditions are expected
to emerge in coming months.
- Alberta: The drop in mortgage rates and sinking
home prices have fully restored homeownership affordability
in the province. Sales of existing units have rebounded
smartly this spring from earlier depressed levels and market
conditions have tightened. Alberta's housing market is likely
at the point of turning the corner.
- Saskatchewan: Significant improvement in affordability
has helped the Saskatchewan housing market pick up pace
again after bottoming at the start of the year. Moderately
stronger sales of existing homes this spring and a slower
pace of home sale listings have restored some balance into
the market.
- Manitoba: Supported by relatively favourable affordability
rates, Manitoba's market continues to be among the most
resilient in the country. A relatively robust economy, steady
population growth and recent improvement in affordability
should support housing demand in the period ahead.
- Ontario: Spring resales figures show a surprising
amount of activity in Ontario, with average prices for existing
homes climbing back to where they were mid-2008. Much of
this resurgence in the province is due to greater affordability,
with homeownership costs for detached bungalows and condominiums
dropping below long-term averages.
- Quebec: Resale activity has rebounded quickly in
Quebec, reflecting a homeownership market that is now more
accessible than has generally been the case in the province
since the mid-1980s. Home prices have generally stayed their
upward course, even through the period of weaker resale
activity earlier this year.
- Atlantic region: The costs of owning a home in
Atlantic Canada continue to improve, with housing affordability
rates among the best in the country. Favourable affordability
levels in Atlantic Canada have given the region some protection
against the housing storm with minimal declines in property
value.
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
Matt Gierasimczuk, Media Relations, RBC, 416 974-2124
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