Affordability slips in the majority of local markets
TORONTO, May 27, 2014 /CNW/ - Home price increases in some of Canada's
largest markets further accelerated in the first quarter of 2014,
boosting homeownership costs and triggering some erosion in
affordability, according to the latest Housing Trends and Affordability Report issued today by RBC Economics Research.
"Prices for single-family homes in Calgary, Toronto and Vancouver had
considerable upward momentum during the first quarter, and led to the
strongest annual price gains nationally in nearly two years," said
Craig Wright, senior vice-president and chief economist, RBC. "This
stood in the way of any widespread improvement in affordability
conditions across Canada."
Still, the latest knock to affordability was modest and did not pose any
immediate threat to the health of Canada's housing market, says RBC.
The RBC housing affordability measure captures the proportion of pre-tax
household income that would be needed to service the costs of owning a
specified category of home at current market values (an increase in the
measure represents deterioration in affordability).
During the first quarter of 2014, affordability measures at the national
level rose in two of the three categories of homes tracked by RBC.
RBC's measures edged higher by 0.1 percentage points to 43.2 per cent
for detached bungalows, and by 0.3 percentage points to 49.0 per cent
for two-storey homes. RBC's measure for condos, however, fell a modest
0.1 percentage points to 27.9 per cent, indicating that affordability
slightly improved for this category of home.
Home resales were generally subdued across the country this past winter,
declining 4.8 per cent between Q4 2013 and Q1 2014. RBC expects this
softness to reverse when better weather returns in the coming months.
April data has already hinted at signs of a pick up - home resales were
up 2.7 per cent month-over-month - the biggest gain since August of
"We expect the rest of the spring season to offer a pick-up in housing
activity, largely owing to fixed mortgage rates that recently eased to
historical lows," said Wright. "This strength will be short-lived,
though, as we believe that there is limited pent-up demand in the first
place, and that longer-term interest rates will start to rise by the
third quarter of this year."
Home resales are projected to rise a modest 0.8 per cent in 2014 to just
over 461,000 units in Canada, standing close to the 10-year average of
467,000 units, according to RBC.
RBC's outlook for housing affordability continues to be mixed, though
the risks are skewed towards deterioration:
If prices continue to accelerate in key Canadian markets in the
near-term, affordability could come under pressure. Potential offsets
could come from a further drop in mortgage rates and/or rapid growth in
The eventual normalization of monetary policy will lead to substantial
increases in interest rates over the medium term, which could be too
much for other affordability determinants to counteract.
"We expect the Bank of Canada to gradually raise the overnight rate
starting in the middle of 2015, which will cause bond yields to drift
gently upward," said Wright. "This should mitigate the risk that higher
rates will unhinge affordability levels."
The majority of local markets saw affordability slip in the first
quarter of 2014 relative to the previous quarter, RBC says.
Concentrated in the two-storey home segment of the markets, Toronto and
Calgary recorded some of the bigger increases; increases were generally
RBC's housing affordability measure for the benchmark detached bungalow
in Canada's largest cities in the first quarter of 2014 is as follows:
Vancouver 82.4 (up 0.9 percentage points from the previous quarter);
Toronto 56.1 (up 0.2 percentage points); Montreal 38.9 (up 0.1
percentage points); Ottawa 36.4 (down 0.5 percentage points); Calgary
34.5 (up 0.9 percentage points); Edmonton 32.9 (down 0.2 percentage
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
Highlights from across Canada:
British Columbia: single-family homes less affordable
Housing affordability continues to be poor in British Columbia. RBC
measures rose 1.2 percentage points for two-storey homes and 0.9
percentage points for bungalows to 74.2 per cent and 68.4 per cent,
respectively. The measure for condos remained unchanged at 33.6 per
Alberta: attractive housing affordability conditions
The provincial housing market continues to be among the stronger in
Canada, supported by a booming economy, rapidly rising population and
attractive affordability. RBC's measures rose a slight 0.1 percentage
points to 32.6 per cent for bungalows and 0.4 percentage points to 20.2
per cent for condominiums. The measure for two-storey homes was
unchanged at 34.4 per cent.
Saskatchewan: affordability plays a neutral role
Owning a home in Saskatchewan became slightly more affordable for the
most part in Q1 2014. RBC's measures fell in two of the three
categories - bungalows by 0.6 percentage points to 36.4 per cent and
condominiums by 0.1 percentage points to 25.4 per cent. The rise in the
measure for two-storey homes - 0.5 percentage points to 40.7 per cent -
reversed a decline that took place in the previous quarter.
Manitoba: housing becomes more affordable
Manitoba homebuyers benefited from some improvement in affordability in
the first quarter of 2014. RBC measures for both bungalows and
condominiums fell in the first quarter to their lowest levels in nearly
a year - by 0.4 percentage points and 0.6 percentage points,
respectively. Although the measure for two-storey homes rose by 0.3
percentage points, it stands at a lower level than last spring.
Ontario: affordability deteriorates in single-family homes
First quarter affordability measures point to a consistently eroding
affordability picture in the province, particularly for single-family
homes. RBC's measures stood at 24-year highs for bungalows at 44.9 per
cent and two-storey homes at 51.0 per cent. The measure for
condominiums was 29.4 per cent - not much below its multi-decade peak.
Quebec: housing affordability levels sit close to historical averages
Housing affordability in the province did not erode much or at all in
the first quarter and largely remain close to historical norms. RBC's
measures edged higher by 0.2 percentage points for bungalows to 34.5
per cent and 0.1 percentage points for two-storey homes to 43.7 per
cent. The measure for condominiums fell 0.1 percentage points to 26.6
Atlantic: favourable affordability conditions do little to energize
The region's housing affordability conditions largely improved in the
first quarter, but did little to pull the market out of its slump. RBC
measures declined 0.4 percentage points to 31.2 per cent for bungalows
and 0.4 percentage points to 25.9 per cent for condominiums. The
measure for two-storey homes rose by 0.2 percentage points to 36.2, but
remained below its long-term average.
The full RBC Housing Trends and Affordability report is available online as of 8 a.m. ET today.
For further information:
Craig Wright, Chief Economist, RBC Economics Research, 416-974-7457
Robert Hogue, Senior Economist, RBC Economics Research, 416-974-6192
Elyse Lalonde, Communications, RBC Capital Markets, 416-842-5635