Housing affordability improves across most of Canada, says RBC Economics
TORONTO, March 15, 2007 — Canada’s overall housing affordability improved in the fourth quarter of 2006, according to the latest Housing Affordability report released today by RBC Economics.
“The improvement was driven by faster income growth, slowing real estate price increases, a small decline in mortgage rates and lower utility bills,” said Derek Holt, assistant chief economist, RBC. “Overall, there is the potential for better housing affordability conditions in 2007, especially in Western Canada, as the market moves into more balanced territory.”
RBC notes that while there were significant variations in the pace of the current real estate market slowdown across the country, the common trends in the fourth quarter were a weaker pace in resale activity, an increase of homes on the market, and more moderate price growth.
The RBC Affordability report captures the proportion of pre-tax household income needed to service the costs of owning a home. The most affordable housing class remains the standard condo, requiring 27.5% of income. A standard townhouse is next at 31.7%, followed by a detached bungalow at 39.4%. A standard two-storey home, while improving, remains the least affordable housing type at 44.9%.
According to the RBC report, the western provinces continue to show signs of price growth topping out, with British Columbia, Alberta and Saskatchewan having likely reached the peak of price appreciation. These provinces, along with Manitoba, reported some affordability improvements. In fact, Alberta’s housing affordability deteriorated for the fifth consecutive quarter, but appears to have slowed significantly. In Central and Eastern Canada, housing affordability improved across-the-board as housing markets continued to soften alongside weaker economic growth.
RBC’s Affordability measure for detached bungalows in Canada’s largest cities is as follows: Vancouver 68.5%, Toronto 42.6%, Calgary 40.9%, Montreal 35.3% and Ottawa 30%.
Also included in the report are housing affordability conditions for a broader sampling of smaller cities across the country. For these smaller cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to incomes into account.
The Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condo. The higher the reading, the more costly it is to afford a home. For example, an Affordability reading of 50% means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50% of a typical household’s monthly pre-tax income.
Highlights from across Canada:
* British Columbia: The final quarter of 2006 provided some relief for B.C. homeowners with affordability improving for the two-storey and detached bungalow segments. However, condos and townhomes continued a fifth straight quarter of deterioration. Overall, B.C.’s housing affordability should continue to improve over the next year.
* Alberta: Since the start of 2005, housing affordability across Alberta has been eroding at an aggressive pace. While the most recent quarter reported another across-the-board deterioration, the pace of erosion appears to have topped out and has slowed significantly.
* Saskatchewan: For a fifth consecutive quarter, affordability eroded in three out of four home classes - detached bungalow, townhouse and condo. Saskatchewan’s annual house price gains, which are in the 10 per cent range, outweighed any mortgage rate relief or household income growth that would have helped offset costs.
* Manitoba: After declining affordability in the first half of 2006, Manitoba saw a marked improvement for the second half of the year. The strongest improvement came from the condo sector, reversing much of the deterioration that occurred in the early part of 2006.
* Ontario: As Ontario’s housing market continued to cool, affordability improved across all classes. Softer price growth, a decline in mortgage rates and lower utility bills combined to bring monthly payments down by one to two per cent for all four housing segments.
* Quebec: Led by improvement in two-storey homes, housing affordability recovered significantly for the first time in over a year as the long-anticipated soft landing continues to unfold. Supply and demand fundamentals in Quebec’s housing market are cooling off in tandem and the effects are overflowing to improve affordability conditions for prospective homeowners.
* Atlantic region: Strong household income growth, lower monthly utility bills and a modest drop in mortgage rates contributed to improve conditions across Atlantic Canada.
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