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Homes slightly less affordable across Canada in Q3 2013: RBC Economics

Owning a single-family home more of a stretch in desirable locations across Toronto, Vancouver and Montreal

TORONTO, November 27, 2013 —  Improved vitality in Canada's housing market, together with an increase in mortgage rates this past summer, set the stage for the second consecutive quarterly deterioration in affordability in the third quarter of 2013, according to the latest Housing Trends and Affordability Report (opens PDF in new window) released today by RBC Economics. Still, RBC says that affordability levels have yet to pose an immediate threat to the housing market's overall health and stability.

"By the third quarter, stronger resale activity across Canada heated up home prices a few degrees, though primarily in single-family home categories. At the same time, Canadian bond yields rose in tandem with those in the U.S., climbing in anticipation of the Fed tapering its bond buying program," said Craig Wright, senior vice-president and chief economist, RBC. "These factors translated into the first notable increase in mortgage rates in Canada this summer since the second quarter of 2011 and, ultimately, contributed to a slip 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 (a rise in the measure represents deterioration in affordability).

During the third quarter of 2013, affordability measures at the national level rose modestly across all three categories of homes tracked. RBC's measure for detached bungalows rose 0.7 percentage points to 43.3 per cent, while the measure for two-storey homes climbed 0.6 percentage points to 48.9 per cent. The measure for standard condominiums edged only slightly higher by 0.1 percentage points to 28.0 per cent.

The RBC report notes that prices for bungalows and two-storey homes continued to outpace those of condos in the third quarter, in turn driving up ownership costs for single-family homes to near-record levels relative to condominiums.

"The diverging, two-tiered trend in affordability further materialized in the third quarter - the difference between measures for two-storey homes and condos at the national level was the second-widest registered since the mid-80s," said Wright.

RBC says that this trend largely reflects the strong demand for single-family homes relative to a more limited supply in desirable locations across Toronto, Montreal and Vancouver. Effectively, single-family homes have become more of a luxury in these markets that proportionally fewer households can afford. RBC notes that in other markets across the country, affordability is generally in line with historical norms for all housing categories.

The report indicates that the biggest risk to maintaining manageable affordability levels in Canada is a sharp rise in interest rates, which RBC says is unlikely at this point. RBC Economics forecasts that the Bank of Canada will leave its overnight rate unchanged in 2014. Bond yields - the main driver of fixed mortgage rates - is projected to drift gently upward throughout the year ahead of what is likely to be a gradual pace of policy tightening by both the U.S. and Canadian central banks, RBC says.

RBC's housing affordability measure for the benchmark detached bungalow in Canada's largest cities is as follows: Vancouver 84.2 (up 2.0 percentage points from the previous quarter); Toronto 55.6 (up 1.3 percentage points); Montreal 38.3 (up 0.3 percentage points); Ottawa 37.3 (up 0.4 percentage points); Calgary 33.7 (up 0.7 percentage points); Edmonton 32.9 (up 0.5 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's housing affordability ebbs (opens PDF in new window)
    Firmer market conditions in the third quarter propped up home prices in the province, contributing to erosion in housing affordability levels. RBC measures rose by 1.5 percentage points for bungalows, 1.2 percentage points for two-storey homes, and 0.8 percentage points for condominiums.
  • Alberta's affordability remains attractive despite deterioration (opens PDF in new window)
    Alberta's housing affordability deteriorated for the third consecutive quarter in the third quarter, albeit modestly. This kept the province in an attractive position relative to other provinces with respect to affordable housing. RBC's measures rose 0.6 percentage points for bungalows, 0.2 percentage points for two-storey homes and 0.1 percentage points for condominiums.
  • Saskatchewan's homeownership remains reasonably affordable (opens PDF in new window)
    RBC measures for Saskatchewan edged slightly higher in the third quarter, up 0.6 percentage points for two-storey homes, 0.2 percentage points for condominiums, and 0.1 percentage points for bungalows. Affordability in the province has mostly trended sideways since 2009, suggesting that it likely has a neutral effect on home buying decisions in the province, RBC says.
  • Manitoba's housing affordability mirroring the national picture (opens PDF in new window)
    RBC's measures for Manitoba increased by almost the same magnitude as Canadian measures for single family homes in the third quarter (0.6 percentage points for bungalows and two-storey homes), while the measure for condos remained unchanged compared to a marginal rise of 0.1 percentage points in Canada overall.
  • Ontario's single-family homes are tougher to afford relative to condos (opens PDF in new window)
    Ontario saw a further modest erosion in housing affordability in the third quarter, largely concentrated in the single-family home segment. RBC's measures rose by 0.9 percentage points for bungalows, 0.7 percentage points for two-storey homes and 0.2 percentage points for condominiums.
  • Quebec's affordability reverses earlier improvements (opens PDF in new window)
    Small improvements in Quebec's affordability levels that took place in the second quarter were for the most part reversed in the third quarter. RBC measures rose for two of three housing types tracked; up 0.6 percentage points for two-storey homes and 0.5 percentage points for bungalows. The measure for condominiums remained unchanged.
  • Atlantic Canada's affordability levels remain within manageable range (opens PDF in new window)
    Affordability in the region compares well against the rest of the country, showing little movement in the third quarter, and keeping within a very manageable range for homebuyers. RBC's measures edged higher by 0.5 percentage points for two-storey homes and by 0.2 percentage points for bungalows. The measure remained unchanged for condominiums in the region.

The full RBC Housing Trends and Affordability report is available online, as of 8 a.m. ET today, at (opens new window).

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For more information, please contact:

Craig Wright, RBC Economics Research,

Robert Hogue, Senior Economist, RBC Economics Research,
416 974-6192

Elyse Lalonde, Communications, RBC Capital Markets,

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