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 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:
The full RBC Housing Trends and Affordability report is available online, as of 8 a.m. ET today, at rbc.com/economics/market/.
- 30 -
For more information, please contact:
Craig Wright, Senior Vice-President and Chief Economist,
RBC, 416 974-7457
Robert Hogue, Senior Economist, RBC Economics Research,
Elyse Lalonde, Manager, Corporate Communications,
RBC Capital Markets, 416 842-5635