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Canadian homes slightly more affordable in the final months of 2013: RBC Economics

TORONTO, February 25, 2014 — Following two consecutive quarters of deterioration, housing affordability in Canada slightly improved in the fourth quarter of 2013, according to the latest Housing Trends and Affordability Report (opens PDF in new window) released today by RBC Economics.

The RBC report notes that household incomes outpaced a modest rise in mortgage carrying costs associated with buying a home at market value in the fourth quarter, which contributed to the improvement in affordability. Easing price gains in most markets across the country and marginal increases in mortgage rates kept the rise in mortgage carrying costs subdued.

"The relative strength in income gains in Canada offset the minor increase in homeownership costs in the final months of 2013, meaning that homes were more affordable for those looking to buy," said Craig Wright, senior vice-president and chief economist, RBC. "When you look at Canada's year-on-year affordability trend, 2013 was little changed from 2012, and even from 2011 or 2010, for that matter. That being said, this stationary trend also means that a divergence still exists - owning a detached home at market value is more of a stretch for homebuyers than owning a condo."

The RBC housing affordability measure captures the proportion of pre-tax household income needed to service the costs of owning a specified category of home at going market values (a decline in the measure represents an improvement in affordability).

During the fourth quarter of 2013, affordability measures at the national level eased modestly across all three categories of homes tracked. RBC's measures for both detached bungalows and two-storey homes edged lower by 0.2 percentage points to 43.1 per cent and 48.7 per cent, respectively. The measure for standard condominiums fell a modest 0.1 percentage points to 28.0 per cent.

RBC says that any affordability related issues which cropped up in the late stages of 2013 didn't seem to deter homebuyers; existing homes were sold at a historically 'normal' pace in the fourth quarter with resales just 0.1 per cent off the 10-year average, representing an 8.6 per cent gain over the same period in 2012. Still, resale activity fell 2.8 per cent from the third quarter of 2013, suggesting that the surprising strength of last summer's rebound likely was overdone.

"Looking ahead in 2014, we expect home resales to rise 0.6 per cent to 461,000 units, keeping Canada's housing market near its recent not-too-hot and not-too-cold levels," added Wright.

RBC anticipates that, as longer term interest rates begin to moderately rise, the costs of owning a home at market value will gradually outpace household incomes by late-2014, leading to increasingly strained affordability in several markets across Canada, much like the current trend in Toronto. Continued balance between demand and supply will sustain generally modest price increases; however, it will be the projected rise in interest rates applying most of the pressure on ownership costs in the period ahead, says Wright.

"While we expect the Bank of Canada to leave its overnight rate unchanged in 2014, we forecast an upward drift in bond yields-the main driver of fixed mortgage rates-ahead of what is likely to be a gradual pace of policy tightening by both the Fed and the Bank of Canada," noted Wright.

RBC's housing affordability measure for the benchmark detached bungalow in Canada's largest cities in the fourth quarter of 2013 is as follows: Vancouver 81.6 (down 2.3 percentage points from the previous quarter); Toronto 55.6 (up 0.1 percentage points); Montreal 38.8 (unchanged); Ottawa 36.7 (down 0.4 percentage points); Calgary 33.8 (down 0.2 percentage points); Edmonton 33.3 (up 0.1 percentage points).

The RBC Housing Affordability Measure, which has been compiled since 1985, is based on the calculated 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.

It is important to note that RBC's measure is designed to gauge ownership costs associated with buying a home at present market values. It is not a representation of the actual costs incurred by current owners, the vast majority of whom have bought in the past at significantly different values than those prevailing in the latest period.

Highlights from across Canada:

  • British Columbia's housing affordability remains relatively poor despite some improvements (opens PDF in new window):
    Affordability conditions improved across all housing categories in the province, with RBC measures falling between 1.0 and 1.4 percentage points in the fourth quarter. With levels at 73.2 per cent for two-storey homes, 67.7 per cent for bungalows and 33.7 per cent for condominium apartments, affordability remains poor, particularly in Vancouver.
  • Alberta's homes become even more affordable (opens PDF in new window):
    Owning a home at market value in Alberta became slightly more affordable for most housing categories in the final quarter of 2013 and continued to compare favourably against historical and national averages. RBC's measures fell by 0.5 percentage points for two-storey homes and by 0.2 percentage points for bungalows. The measure for condominiums edged higher by 0.1 percentage points.
  • Saskatchewan's affordability trends sideways (opens PDF in new window):
    Housing affordability in the province continued to play a predominantly neutral role in home-buying decisions with levels standing close to historical norms. RBC's affordability measures declined 1.1 percentage points for two-storey homes and 0.2 percentage points for bungalows. The measure for condominiums was up by 0.4 percentage points.
  • Manitoba's surge in listings lends a hand to affordability (opens PDF in new window):
    A surge in newly listed homes for sale weakened demand-supply conditions in Manitoba during the second half of 2013, which ultimately helped to improve affordability with RBC measures for two-storey homes and bungalows slipping by 1.1 percentage points and 0.6 percentage points, respectively. The measure for condominiums rose by 0.8 percentage points.
  • Ontario's affordability picture remains largely unchanged (opens PDF in new window):
    RBC's affordability measures for Ontario eased by 0.1 percentage points for both bungalows and two-storey homes and stayed flat for condominiums in the fourth quarter of 2013. Owning a single-detached home at market value in the province continues to take a larger share of household income compared to the historical average despite marginal improvements for the first time in a year.
  • Quebec's affordability conditions little changed from the third quarter (opens PDF in new window):
    The only observable variation in affordability conditions in Quebec during the fourth quarter was in the two-story homes category, with RBC's measure inching higher by 0.2 percentage points. The measures for bungalows and condominium apartments remained unchanged. All measures continued to stand near their long-run averages.
  • Atlantic Canada retains decent affordability conditions (opens PDF in new window):
    Housing affordability in the region remained at generally neutral levels in the fourth quarter, and still compared favourably against the majority of markets across Canada. RBC's measures fell by 0.6 percentage points for two-storey homes and by 0.1 percentage points for bungalows. The measure for condominiums rose by 0.2 percentage points.

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, RBC Economics Research, 416-974-7457
Robert Hogue, Senior Economist, RBC Economics Research, 416-974-6192
Elyse Lalonde, Manager, Communications, RBC Capital Markets, 416 842-5635

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