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Special Reports

 

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.

- 30 -

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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Housing Trends and Affordability
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07/08/2009 08:46:45