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Special Reports

 

Affordability drops as homeownership costs rise, says RBC Economics

TORONTO, November 25, 2009 — The cost of homeownership in Canada became more expensive for the first time since the spring of 2008 across all housing segments, according to the latest housing report released today by RBC Economics Research.

"Home affordability deteriorated in all provinces and major markets in Canada due to a slight rise in key mortgage rates and appreciation in property values," said Robert Hogue, senior economist, RBC. "Despite this increase in homeownership costs, affordability measures have still shown improvement from a year ago."

The RBC Housing Affordability measure captures the proportion of pre-tax household income needed to service the costs of owning a home. During the third quarter of 2009, the RBC Affordability measure at the national level rose across all housing types (the higher the measure, the more expensive it is to afford a home). The benchmark detached bungalow moved up by one per cent to 40.2 per cent, the standard townhouse rose by 0.7 per cent to 32.3 per cent, the standard condo climbed by 0.5 per cent up to 27.6 per cent and the standard two-storey home increased by 1.2 per cent to 45.8 per cent.

The RBC report found that demand in the housing market has outgrown supply since the rebound started last winter, leading to a much more competitive market and widespread increases in home values across many parts of the country.

"With such strong momentum in the housing market and the cyclical low in mortgage rates behind us, it seems unlikely that affordability will improve in the near future," added Hogue. "The housing market still faces obstacles, as mortgages have become more difficult to handle for many Canadians amid challenging labour conditions. This is likely to persist until the economic recovery is well established and job creation is sustained next year."

RBC's Affordability measure for a detached bungalow for Canada's largest cities is as follows: Vancouver 66.8 per cent, Toronto 48.6 per cent, Ottawa 39.2 per cent, Montreal 37.5 per cent and Calgary 36.7 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.

Highlights from across Canada:

  • British Columbia: Following five consecutive declines, homeownership costs rose in B.C. during the third quarter. With housing demand growing faster than the supply, prices have been rising again. This development likely marks the end of the affordability upswing in B.C., with indications that homeownership costs will remain well above long-term averages.

  • Alberta: The province experienced the first increase in homeownership costs since late-2007, in the third quarter. Housing market activity has picked up and stabilized with the modest rise in costs attributable to higher mortgage costs rather than a rise in property values. Attractive affordability levels and a return to economic growth should fuel housing demand in Alberta next year.

  • Saskatchewan: With mortgage rates rising slightly and properties gaining value, owning a home became slightly less affordable in the province, following steady improvement for more than a year. However, homeownership costs remain historically high in Saskatchewan as a result of the sharp price appreciation that took place during the recent housing boom.

  • Manitoba: Despite slight increases in the cost of homeownership - the smallest amongst all provinces in the third quarter - Manitoba's housing market remained relatively affordable. Market conditions in the province appear tightly balanced, which should sustain solid resale activity in the near-term. Job growth and a faster economic expansion next year should maintain solid housing demand.

  • Ontario: After a period of declining property values, the Ontario housing market appears to be bouncing back with home resale prices returning to and, in some cases, surpassing earlier peaks. While this reversal has brought confidence back into the market, third quarter affordability levels have deteriorated for the first time in over a year.

  • Quebec: Broad-based vigour in the housing market fueled by the earlier drop in mortgage rates to historically low levels, has sent property values to new highs in many parts of Quebec. Consequently, housing affordability deteriorated in the province for the first time in more than a year during the third quarter.

  • Atlantic Canada: Housing on the east coast continued to be among the most affordable in the country, with Atlantic Canada experiencing moderate but steady gains in property values sustained by a gradual increase in the sale of existing homes. Increases in homeownership costs in the region, in the third quarter, were modest relative to other provinces, with levels mostly below national averages.

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.

- 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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11/25/2009 08:43:24