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Toronto sees short-term affordability relief for homebuyers: RBC Economics

  • RBC’s housing affordability measure for Canada improves for the first time in more than two years in the fourth quarter of 2017
  • An easing in Toronto’s detached home prices provided most of the relief
  • Vancouver-area buyers faced the most significant deterioration in RBC’s aggregate affordability measure

TORONTO, April 5, 2018 - Housing affordability improved for the first time in more than two years in the fourth quarter of 2017 thanks to a drop in Toronto’s detached home prices, according to the latest Housing Trends and Affordability Report issued today by RBC Economics Research.

Yet despite the welcome relief, Toronto homebuyers may not feel much of a difference or, if so, not for long.

“We expect the relief to Toronto ownership costs that ensued from the introduction of Ontario’s Fair Housing Plan to be short-lived,” said Craig Wright, Senior Vice-President and Chief Economist at RBC. “Our view is that Toronto prices will bottom out sometime this spring. Then we expect further interest rate hikes through the remainder of this year, which has the potential to stress housing affordability markedly in Canada.”

The national aggregate measure eased by 0.2 percentage points to 48.3 per cent in the fourth quarter, while in the Toronto area, the aggregate measure dropped by 2.3 percentage points to 75.1 per cent (a decrease in the measure represents an improvement in affordability).

Housing affordability is calculated as the share of household income that would be required to carry the costs of owning a home at market price. A higher number means ownership is less affordable.

In British Columbia, the re-acceleration of home prices in the Vancouver area and continued appreciation in Victoria intensified affordability tensions in the province’s two largest markets. Vancouver buyers faced the most significant deterioration in the fourth quarter, with RBC’s aggregate measure rising by 1.8 percentage points. Victoria’s measure edged 0.5 higher.

“Unfortunately, Vancouver homebuyers are being challenged by the worst affordability levels ever recorded in Canada,” said Wright. “The costs of owning a home at today’s prices would have represented an astounding 85.2 per cent of a typical household’s income in the fourth quarter. In this context, it wasn’t a surprise to see the BC government announced further housing policy initiatives to cool the market in its 2018 budget.”

Both Montreal and Ottawa continue to benefit from the vibrancy of their regional economies and upbeat consumer confidence. Both markets saw a pick-up in housing resale activity and strengthening prices in 2017. The downside for Montreal is that it just recorded the ninth increase in its aggregate affordability measure in the past ten quarters, and this is starting to take the shine off its reputation as an affordable market.

The picture has changed little for housing markets in the Prairies and Atlantic Canada. Home ownership costs have remained largely stable though, a small increase in mortgage rates contributed to a slight deterioration in affordability within these regions in the fourth quarter.

More details regarding provincial and regional housing figures can be found in the fact sheet.

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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
Joel Dembe, RBC Communications, 647-518-4981