Canadas housing affordability worsens as home prices
continue to rise: RBC Economics
TORONTO, May 25, 2010 — Homeownership costs
in Canada rose for the third straight quarter across all housing
segments, as a strong real estate market and increased prices
made it more expensive to own a home, according to the latest
housing report released today by RBC Economics Research.
"Although home ownership became more costly in the first
quarter of 2010, affordability measures are still moderately
above the long-term average and below peak levels," said
Robert Hogue, senior economist, RBC. "We expect affordability
to deteriorate throughout 2010 and 2011, but this should be
limited as more balanced supply and demand conditions will
take much of the steam out of the housing market."
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 2010, measures
at the national level rose across all housing types (the higher
the measure, the more difficult it is to afford a home).
The detached bungalow benchmark measure rose by 0.9 of a
percentage point to 41.1 per cent, the standard townhouse
inched up by 0.4 of a percentage point to 33 per cent, the
standard condominium climbed by 0.5 of a percentage point
up to 28.2 per cent and the standard two-storey home increased
by 0.6 percentage points to 46.8 per cent.
The report projects that the cost of owning a home will continue
to rise. The main contributing factor will be the expected
rise in interest rates, as the Bank of Canada moves towards
raising the current exceptionally low rates to more normal
levels through the second half of this year and in 2011. According
to the report, housing affordability measures in Canada are
unlikely to exceed the peak levels reached in early 2008.
"We believe that the spectacular rally in housing prices
over the past year will soon end, as rock-bottom mortgage
rates increase," noted Hogue. "Sustained economic
growth over the next year and the ensuing rise in job creation
and household income should keep home affordability from spiraling
out of control."
With the exception of Alberta, home affordability measures
deteriorated across all provinces with a significant decline
in affordability in B.C., Saskatchewan and Manitoba. Housing
affordability declined more moderately in Quebec, Ontario
and Atlantic Canada.
RBC's Housing Affordability measure for a detached bungalow
in Canada's largest cities is as follows: Vancouver 73.4 per
cent (up 4.8 percentage points over the last quarter), Toronto
49.1 per cent (up 0.4 of a percentage point), Ottawa 40.3
per cent (up 0.3 of a percentage point), Montreal 39.7 per
cent (up 0.9 of a percentage point), Calgary 36.5 per cent
(down 0.3 of a percentage point) and Edmonton 32.0 (down 0.5
of a percentage point).
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 became even more
expensive in B.C., as strong home price momentum continued
in the first quarter. Housing affordability measures have
now returned close to the all-time highs reached in early-2008.
This trend represents a risk that could weigh heavily on
the province's housing market in the near term.
- Alberta: Affordability measures eased in the first
quarter, as Alberta was the only province to show a decline
in the costs associated with owning a home. Housing price
increases in the province were fairly modest over the past
year, which has kept home ownership relatively affordable.
RBC affordability measures are at or below the long-term
- Saskatchewan: Housing prices picked up in the province
in early 2010, causing home affordability measures to rise
significantly. This is a change from previous quarters,
which showed an improvement in affordability. Despite this
increase, affordability measures still remain well below
the all-time peak levels reached in early-2008.
- Manitoba: Prices for most housing types surged
ahead in the first quarter of 2010, pushing affordability
measures above the long-term average for the province despite
a slower pace of resale activity. Affordability in the province
has reached a point where an additional decline in home
affordability may temper housing demand.
- Ontario: Home prices in the province continued
to rise, with property values reaching record highs in many
parts of the province. This has led to a further decline
in housing affordability, which has been on a deteriorating
trend since the middle of last year. With escalating prices,
affordability measures are now above the long-term average.
This suggests that additional increases in housing costs
may price more and more buyers out of the market in Ontario.
- Quebec: Quebec's housing market rally continued
in the first quarter of the year, with record-levels of
buying activity and rising property values. This escalation
in home prices, while more moderate than in the previous
two quarters, weakened affordability in the province. All
affordability measures now exceed their long-term average,
which may soon slow housing demand in the province.
- Atlantic Canada: Resale activity on the East Coast
remained solid, with an increase in sales met by a rise
in the supply of available homes. These broadly balanced
conditions have limited the pace of price increases in the
region. Overall housing affordability in Atlantic Canada
continues to be among the most attractive in the country,
with measures still below long-term averages.
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