Canadas housing affordability slips slightly: RBC
TORONTO, March 15, 2010 — Homeownership costs
in Canada increased slightly across all housing segments in
the closing months of 2009, as rising prices made it more
expensive to own a home, according to the latest housing report
released today by RBC Economics Research.
"While home affordability deteriorated at the national
level in the fourth quarter of 2009, the change was relatively
modest overall," said Robert Hogue, senior economist,
RBC. "The effect of higher prices was largely mitigated
by a small decline in mortgage rates and continued gains in
The RBC Housing Affordability measure captures the proportion
of pre-tax household income needed to service the costs of
owning a home. During the fourth quarter of 2009, measures
at the national level rose slightly across all housing types
(the higher the measure, the more difficult it is to afford
The detached bungalow benchmark inched 0.3 per cent higher
to 40.6 per cent, the standard townhouse rose by 0.2 percentage
points to 32.9 per cent, the standard condominium climbed
by 0.1 per cent up to 28 per cent and the standard two-storey
home increased by 0.3 percentage points to 46.7 per cent.
Despite the recent increase, all affordability measures remain
well below their levels from a year ago.
The report projects that the cost of owning a home will continue
to rise, as strong demand and limited supply of homes for
sale sustain the upward trend in prices. Exceptionally low
mortgage rates and anticipated rate increases starting mid-year
are fuelling demand.
Real estate markets in B.C. and Ontario should see a further
boost in demand prior to the introduction of the harmonized
sales tax (HST) on July 1, 2010, which will increase the transaction
costs associated with a home purchase.
According to the report, the federal government's recent
announcement of changes to the mortgage market were aimed
at preventing a bubble from forming in Canada and could reduce
demand when the new rules take effect in April. However, the
precise market effect is unknown at this point.
"The anticipated and gradual rise in interest rates
indicates that affordability is likely to gradually get worse
as rates return to normal levels," added Hogue. "The
significant drop in mortgage rates since late 2008 was the
principal factor contributing to the overall improvement in
housing affordability in the past year."
RBC's Housing Affordability measure for a detached bungalow
for Canada's largest cities is as follows: Vancouver 69 per
cent (up 1.4 percentage points), Toronto 49.1 per cent (up
0.1 percentage point), Ottawa 40.4 per cent (down 0.3 percentage
points), Montreal 39.1 per cent (up 0.9 percentage points),
Calgary 37.1 per cent (up 0.1 percentage point) and Edmonton
32.9 per cent (down 0.4 percentage points).
The RBC Housing Affordability measure, which has been 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: Homeownership costs are rising
in B.C. as very strong demand and a limited supply of homes
for sale combine to propel prices substantially higher.
All home affordability measures are above long-term averages
in the province, a trend that is likely to continue in the
- Alberta: The lagging economic recovery in Alberta,
compared to other provinces, has stabilized housing affordability
rates. Excessive supply left over from last year's downturn
and housing slump has limited increases in housing prices.
Attractive affordability levels and additional economic
recovery should boost housing demand over the next year.
- Saskatchewan: Increased supply and lessened demand
has put a damper on the housing market in the province,
as the real estate market cooled from the heightened resale
activity in the spring and summer. While home affordability
improved in the province, the cost of owning a home still
remains historically high.
- Manitoba: Manitoba's real estate market picked
up considerably over the last quarter of 2009. Prices for
condominiums and two-storey homes rose significantly, causing
affordability levels to deteriorate in the province. Despite
these increases, affordability levels are in line with long-term
averages as Manitobans still see the costs associated with
owning a home as manageable.
- Ontario: The housing market in Ontario has staged
a remarkable recovery in the past year. Resale activity
has recently reached record levels as prices have rebounded
to new heights in most housing categories. This has caused
only limited damage to housing affordability in the province
as lower mortgage rates and growth in household income kept
affordability levels close to long-term averages.
- Quebec: The provincial rally in the resale housing
market shows few signs of slowing, as property values have
fully recovered what little ground was lost during the downturn
early last year. Home prices have risen substantially for
most housing categories in the fourth quarter in Quebec,
causing some of the sharper deteriorations in affordability
- Atlantic Canada: Unlike many other parts of the
country, housing affordability on the East Coast generally
continued to improve in the fourth quarter. With most measures
below long-term averages, activity in the housing resale
market should remain elevated.
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