Canada's Housing Affordability Trending #Directionless:
TORONTO, November 22, 2012 Canada's housing
market became more affordable in the third quarter of 2012
as a result of modest declines in home prices and further
gains in household incomes, according to the latest Housing
Trends and Affordability Report issued by RBC Economics
Research. The longstanding affordability trend, however, is
"The broad affordability picture has been somewhat stationary over the
last two years, alternating between periods of improvement
and deterioration, resulting in an affordability trend that
is, on net, essentially flat," said Craig Wright senior
vice-president and chief economist, RBC. "We saw this
directionless trend in the third quarter as housing affordability
fully reversed the mild erosion witnessed in the first half
of the year."
RBC notes that Canada's housing market cooled further in
the third quarter. This was in part because of the effects
of a fourth round of rule changes to government-backed mortgage
insurance, which effectively raised the bar for first-time
homebuyers. RBC expects the restrictive effects from these
modifications to ease by the end of the year and that resale
activity will stabilize in 2013.
Exceptionally low interest rates have been the key factor
in keeping affordability levels from reaching dangerous heights
in Canada in recent years. RBC indicates that as interest
rates are currently at generational lows, the scope for increases
is substantial in the coming years.
"Assuming that the European crisis remains somewhat
in check, and that the U.S. fiscal challenges are addressed,
we anticipate that the Bank of Canada will begin gradually
raising the overnight rate in the second half of next year,"
added Wright. "This, along with the expected continued
growth in household income, will lessen the risk of marked
erosion in affordability."
The RBC housing affordability measure captures the proportion
of pre-tax household income that would be needed to service
the costs of owning a specified category of home at going
market values. During the third quarter of 2012, measures
at the national level fell in all three categories of homes
tracked (a decline represents an improvement in affordability).
RBC's measure for the benchmark detached bungalow edged lower
by 1.0 percentage point to 42.0 per cent, while the two-storey
homes category fell by 1.2 percentage points to 47.8 per cent;
the measure for condominium apartments eased by 0.6 percentage
points to 28.0 per cent.
In spite of this improvement, RBC measures continue to modestly
exceed their long-term averages, though national figures are
somewhat inflated by extremely poor affordability in the Vancouver-area
"The cost of owning a home took a smaller bite out of
household pocketbooks in the third quarter as home prices
fell - most notably in the Vancouver area, though it remains
the least affordable market in Canada by a wide margin,"
Where housing affordability stands in Canada:
RBC's housing affordability measure for the benchmark detached bungalow in
Canada's largest cities is as follows: Vancouver 83.2 per
cent (down 5.8 percentage points from the previous quarter);
Toronto 52.4 per cent (down 0.7 percentage points); Montreal
40.2 per cent (up 0.1 percentage points); Ottawa 38.7 per
cent (down 0.4 percentage points); Calgary 38.3 per cent (down
0.7 percentage points) and Edmonton 31.1 per cent (down 0.6
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 in
Canada) at market value. Alternative housing types are also
presented, including a standard two-storey home and a standard
condominium apartment. The higher the reading, the more difficult
it is to afford a home at market values. For example, an affordability
reading of 50 per cent means that homeownership costs, including
mortgage payments, utilities and property taxes, would take
up 50 per cent of a typical household's monthly pre-tax income.
Highlights from across Canada:
Columbia: Affordability hurdles still tough to clear
British Columbia's housing market experienced improvements
in the third quarter of 2012, and yet, affordability conditions
remained the poorest across Canada. RBC measures fell between
2.0 percentage points and 3.7 percentage points, the largest
drops across Canada. The situation remains less severe elsewhere
in the province; the share of income needed to carry ownership
costs in Victoria, for instance, is almost half the share
in Vancouver for some housing types.
Attractive affordability contributes to market renaissance
Alberta's housing market enjoyed firm and steady resale
activity, balanced demand-supply conditions, moderate home
price increases, and improved housing affordability. Third
quarter affordability measures for the province edged lower
- between 0.2 percentage points and 0.4 percentage points
-remaining below their long-term and the national averages.
Little evidence of affordability strain
Significant deteriorations in housing affordability in the
second quarter in Saskatchewan were largely reversed in
the third with RBC measures in the province falling between
0.9 percentage points and 1.3 percentage points. The measures
stood just slightly above their long term averages for all
housing categories, indicating little in the way of undue
affordability induced strain on the market.
Market losing some of its steam; minimal pressure on affordability
Declining housing prices spurred a notable improvement in
housing affordability in Manitoba over the third quarter.
RBC measures fell between 0.6 percentage points and 1.6
percentage points, which fully unwound the deterioration
that occurred in the prior quarter. Provincial affordability
levels sit slightly higher than their averages since the
mid 1980s, but remain well below the corresponding national
More balanced conditions help to ease affordability stress
Ontario's housing affordability eased somewhat in the third
quarter, but remains under mild pressure, most notably in
the two-storey home segment. RBC measures declined between
0.5 percentage points and 1.1 percentage points in the province,
which, in effect, rolled back the two consecutive quarterly
increases that took place in the first half of this year.
Second straight affordability improvement
Housing affordability improved for the second straight quarter
in Quebec, with RBC's measures edging lower across all housing
types in the province, between 0.6 percentage points and
0.8 percentage points, in the third quarter. For the most
part, levels are only slightly worse than the average historical
level, indicating that prospective homebuyers in Quebec
may feel minimally stretched budget-wise, if they bought
a home at current market prices.
Affordability position remaining quite stable
Housing affordability in Atlantic Canada improved slightly
across the board, with RBC measures in the region inching
lower by 0.2 percentage points to 0.7 percentage points
relative to the previous quarter. Affordability measures
have been reasonably stable over the past three years in
the region, showing no discernable trends on either the
up or down sides.
The full RBC Housing Trends and Affordability report is available
online, as of 7 a.m. ET today, at www.rbc.com/economics/market/.
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For more information, please contact:
Wright, Senior Vice-President and Chief Economist,
RBC, 416 974-7457
Hogue, Senior Economist, RBC Economics Research,
Lalonde, Manager, Corporate Communications,
RBC Capital Markets, 416 842-5635