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Canada's housing affordability slightly improves for the second consecutive quarter: RBC Economics

  • Low interest rates keep affordability-related stress in Canada's housing market to a minimum
  • 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 & Affordability Report (opens PDF in new window) 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

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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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