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Canada's housing affordability slightly improves
for the second consecutive quarter: RBC Economics
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Low interest rates keep affordability-related stress
in Canada's housing market to a minimum
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Affordability improved modestly in most major city markets
in the final quarter of 2012
TORONTO, February 25, 2013 — Canada's homeownership
costs fell slightly in the second consecutive quarter in the
last quarter of 2012, according to the latest Housing
Trends and Affordability Report issued by RBC Economics
Research. The RBC report notes that small declines in mortgage
rates and in home prices across several markets resulted in
an overall improvement in affordability.
"Exceptionally low interest rates have been the key
factor keeping home affordability from reaching dangerous
levels in recent years," said Craig Wright, senior vice-president
and chief economist, RBC. "Residential property values
are elevated in Canada and, for many households, ownership
remains accessible only because of rock-bottom mortgage rates.
It could be a different story if interest rates were to move
swiftly and significantly higher."
RBC anticipates that the Bank of Canada will leave its overnight
rate unchanged at one per cent through 2013 and gradually
begin to increase it in early 2014. At the same time, the
Canadian economy is expected to be on stronger footing, providing
some offset to negative effects that might materialize in
the housing market from a slow and steady rise in interest
rates, says RBC.
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 fourth 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 measures for both detached bungalows and condominium
apartments eased by 0.2 percentage points to 42.1 per cent
and 28.0 per cent, respectively; the measure for the two-storey
home fell by 0.3 percentage points to 47.8 per cent. Measures
still modestly exceeded their historical averages, though
national figures are somewhat exaggerated by extremely poor
affordability conditions in the Vancouver-area market.
Despite balanced demand and supply conditions in the majority
of local markets in Canada, softer homebuyer demand since
the middle of 2012 has weighed on home prices, with modest
month-to-month declines becoming common occurrences since
the summer.
"We expect overall housing market activity to remain
subdued this year," added Wright. "That said, we
believe that there is scope for some mild strengthening from
recent activity levels, as the negative effects of the mortgage
insurance rule changes, implemented in July 2012 gradually
dissipate."
RBC's housing affordability measure for the benchmark detached
bungalow in Canada's largest cities is as follows: Vancouver
82.2 per cent (down 2.6 percentage points from the previous
quarter); Toronto 52.8 per cent (down 0.4 percentage points);
Montreal 39.3 per cent (down 0.9 percentage points); Ottawa
38.8 per cent (down 0.5 percentage points); Calgary 38.1 per
cent (up 0.2 percentage points) and Edmonton 30.7 per cent
(down 0.1 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 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:
- British
Columbia: housing affordability improving, still has
to go the distance
While housing affordability in British Columbia still has
a long way to go before reaching less stressful levels,
homebuyers in the province received a welcome reprieve in
the fourth quarter. RBC measures fell by 1.1 percentage
points for condominium apartments and 1.0 percentage point
for detached bungalows. The two-storey home category experienced
a small increase (0.4 percentage points), though this followed
a substantial decline in the third quarter.
- Alberta:
vibrant market bolstered by attractive affordability
Brisk demand for the province's housing in 2012 was supported
by a strong provincial economy, accelerating population
growth and attractive affordability. Further improvement
was registered in the fourth quarter with measures falling
between 0.1 and 0.2 percentage points.
- Saskatchewan:
affordability conditions buck the national trend
Tight market conditions at the beginning of 2012 had a lasting
impact on home prices in Saskatchewan, which climbed at
some of the faster paces in Canada in the fourth quarter.
Rising property values caused affordability to deteriorate
in the fourth quarter with measures increasing between 0.5
and 1.1 percentage points.
- Manitoba:
market vigour unhindered by slight affordability deterioration
Manitoba's housing market registered a banner year in 2012
with a record 14,000 existing homes sold, indicating that
housing affordability levels had little dissuasive effect
on homebuyers in 2012. Although measures for detached bungalows
and condominiums deteriorated in the fourth quarter, measures
for two-storey homes remained unchanged. RBC's measures
for Manitoba continued to rank slightly above their long-term
average, suggesting that any affordability strain is likely
minimal at this point.
- Ontario:
affordability largely improves, tempering overall market
conditions
The tightness that characterized Ontario's housing market
in the early part of 2012 gave way and a more balanced market
was observed in the second half of 2012, improving overall
affordability conditions in the province. RBC's measures
inched lower by 0.1 and 0.3 percentage points for the detached
bungalow and condominium apartment, respectively, while
the measure for two-storey homes rose marginally by 0.1
percentage points.
- Quebec:
generally improving affordability tone is sustained
Quebec's housing affordability improved, for the most part,
for the third quarter in a row in the fourth quarter, yet
this did little to stimulate homebuyer demand as resale
activity continued to cool in the province. RBC measures
fell for two-storey homes (by 1.1 percentage points) and
detached bungalows (by 0.3 percentage points), but rose
for condominium apartments (by 0.4 percentage points).
- Atlantic
Canada: housing continues to be affordable
Affordability in the Atlantic region received another boost
in the fourth quarter, with RBC measures falling for two-storey
homes (by 1.0 percentage points) and detached bungalows
(by 0.5 percentage points), keeping levels well below their
respective national averages. The measure for condominium
apartments rose modestly by 0.3 percentage points, though
this followed a more sizable drop in the previous period.
The full RBC Housing Trends and Affordability report is available
online, as of 8 a.m. ET today, at rbc.com/economics/market/.
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For more information, please contact:
Craig
Wright, Senior Vice-President and Chief Economist,
RBC, 416 974-7457
Robert
Hogue, Senior Economist, RBC Economics Research,
416 974-6192
Elyse
Lalonde, Manager, Corporate Communications,
RBC Capital Markets, 416 842-5635
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