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Canadian housing affordability at worst level in nearly 30 years: RBC Economics

  • RBC’s housing affordability measure hits its highest level since 1990 – and it’s likely going to get worse
  • Condo affordability has eroded more than single-detached homes this year in Canada
  • Unaffordability remains off the charts in Toronto and Vancouver, with higher interest rates affecting nearly all Canadian markets in the second quarter

TORONTO, September 28, 2018 - Canadian housing affordability is now at its worst level since 1990, according to the latest Housing Trends and Affordability Report issued today by RBC Economic Research.

RBC’s aggregate housing affordability measure rose to 53.9 per cent in the second quarter of 2018– up significantly from 43.2 per cent just three years ago. Skyrocketing home prices in some of Canada’s largest markets gave the initial push, but it’s been rising interest rates that have been driving the measure to near-record levels in the past year.

RBC’s housing affordability measure is calculated as a share of household income. A higher number means that buying a home is less affordable.

A lift in borrowing costs accounted for virtually the entire 2.6 percentage-point increase in RBC’s measure in the past year and most of the 1.1 percentage point advance in the second quarter of 2018. Add the stress test on top of this and the picture gets even more daunting for many Canadian buyers, according to RBC Economics.

“The grim outlook for prospective home-buyers will likely continue in the near term,” said Craig Wright, Senior Vice-President and Chief Economist at RBC. “We anticipate the Bank of Canada will proceed with further interest rate hikes well into 2019. This will keep mortgage rates under upward pressure and boost ownership costs even more across Canada.”

A new development in 2018 has been that affordability deteriorated more for condos than single-detached homes. This was especially the case in Toronto, where detached home prices fell while condo prices continued to rise.

Affordability conditions remained extremely strained in Toronto and Vancouver in the second quarter. RBC’s aggregate measure for the GTA rose by 1.8 percentage points to 75.9 per cent – meaning a typical home buyer would need to spend an astounding three quarters of their income to cover ownership costs. And things likely will not get better.

In Vancouver, the housing affordability situation is at crisis levels. RBC’s aggregate affordability measure for the area hit an all-time record – reaching 88.4 per cent. The measure jumped by 1.6 percentage points in the second quarter and is up 8.2 percentage points from a year ago.

“The prospect of further rate hikes doesn’t bode well for Toronto or Vancouver buyers, whether they’re on the look-out for a condo or a single detached home,” said Wright. “Affordability pressures are likely to become an even bigger issue for them, which we believe will limit how much home resale activity will rebound from its recent cyclical low.”

Victoria is another market where affordability is strained. RBC’s aggregate measure for the area jumped 2.4 percentage points to 65 per cent in the second quarter – the third highest among markets that RBC Economics tracks in Canada.

In nearly all other Canadian markets, higher interest rates had a modest negative effect on affordability in the second quarter though conditions generally remain manageable. Only St. John’s saw a slight improvement, which was mainly due to difficult market conditions that led to a drop in housing prices.

Overall, potential buyers hoping to get a meaningful break in affordability will likely be disappointed. RBC Economics expects intensifying affordability pressures to hold back homebuyer demand in the coming year.

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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