RBC says fewer can afford city homes
Toronto still cheap compared with hot VancouverÂ
Housing affordability in Toronto deteriorated for a third consecutive quarter as household income failed to keep pace with higher mortgage rates and utility costs, according to an RBC Economics report released yesterday.
Still, Toronto remains affordable when compared with Western Canadian cities such as Vancouver, which have had substantial price increases over the past few years, said RBC economist Derek Holt.
“There is a real regional divide happening in housing markets that has intensified with the latest results,” Holt said.
In both cities, prices for detached bungalows, two-storey homes, townhouses and condominiums all “witnessed worsened affordability” as prices jumped in the spring and early summer compared with the previous quarter, the bank said.
According to the index, it took 50.1% of median pre-tax household income to afford a standard two-storey home in Toronto in the second quarter of 2006, compared with only 47.6% in the first quarter.
The higher the index figure, the more difficult it is to own a home. An affordability index of 50 means that homeownership costs, including mortgage payments, utilities and property taxes, take up half of a typical household’s monthly pre-tax income.
In contrast, it now takes a staggering 72.8% of pre-tax income to afford a standard two-storey home (with 1,500 square feet) in Vancouver.
In Vancouver, house-price increases were the main reason for drop in affordability. In Toronto, on the other hand, interest rates and utility costs, which are running 12% higher than a year earlier, were a significant factor in making homes less affordable.
Still, the affordability numbers for Toronto are a far cry from the late 1980s, when it took almost 70% of income (still less than Vancouver today) to maintain a home. In 1997, it took only 40% of income to afford a Toronto home.
Alberta and British Columbia in general have experienced strong erosions in affordability. Still, homes in Calgary and Edmonton remain more affordable than those in Toronto or Montreal.
The pace of price gains are slowing in Toronto, which should help to ease the affordability crunch in future. House prices are really starting to cool off aggressively in Toronto.
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