Affordability drops as homeownership costs rise, says RBC
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
- 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
- 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.
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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