TORONTO, May 23, 2013 /CNW/ - Canada's housing market remained under
moderate affordability-related stress in the first quarter of 2013, as
housing affordability stayed in the holding pattern that began in early
2010, according to the latest Housing Trends and Affordability Report issued by RBC Economics Research. Housing affordability was largely
unchanged in the latest period, as it was largely the status quo for
mortgage rates, home prices and household incomes.
"The Canadian housing market cooled significantly in the past year;
however, there is mounting evidence that activity is no longer
weakening," said Craig Wright, senior vice-president and chief
economist, RBC. "A significant nation-wide price correction does not
appear to be imminent so long as affordability remains outside of the
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 going market values (a rise in the
measure represents deterioration in affordability).
During past housing market downturns in Canada, RBC estimates that the
measure for the benchmark detached bungalow most often climbed above
the 44.5 per cent mark before prices fell more than 5.0 per cent (peak
to trough). At 42.5 per cent (up by 0.3 percentage points) in the first
quarter of this year, the bungalow measure remained below this critical
During the first quarter of 2013, measures at the national level were
unchanged in the two other categories of homes tracked. RBC measures
for the standard two-storey home and condominium apartment categories
remained at 48.0 per cent and 28.1 per cent, respectively.
Exceptionally low mortgage rates have been the chief factor in keeping
homeownership costs relatively affordable, RBC says.
"While affordability levels are manageable at this point, we'd be
humming a very different tune if interest rates were to suddenly rise
substantially. Fortunately, the likelihood of a surge in rates is slim
at this stage," said Wright. "We believe that the more probable
scenario in Canada is one of low interest rates over the next two
years; we expect the Bank of Canada to begin gradually raising the
overnight rate in mid-2014."
RBC notes that when interest rates eventually rise, it will be because
the Canadian economy is on stronger footing. Part and parcel of this
stronger economic environment will be heftier household income gains,
which would work to offset any negative impact on affordability.
The housing market is clearly cooler than it was just a year ago; home
resales were down 13 per cent nationally in the first quarter of this
year relative to the same period in 2012. RBC notes that much of the
decline took place in the months following the latest changes to
government-insured mortgage insurance rules implemented in July.
Activity appears to have stabilized since then - first-quarter resales
were unchanged from the fourth quarter of 2012.
Home prices in Canada gave up some ground after a peak in June of 2012,
but have generally held up so far in 2013, thanks to predominantly
balanced markets in Canada. RBC says that in the past year as demand
cooled, the supply of homes for sale also curbed, helping to maintain
RBC expects market activity to remain subdued this year. However, as the
negative effects of the mortgage insurance rule changes gradually
dissipate, there could be a mild strengthening from recent monthly
In Canada's local markets, there were some divergences in affordability
trends in the first quarter of 2013, but, in most cases, changes were
minimal. Vancouver continues to be the least affordable market in the
country by far. RBC notes that, to a lesser extent, Toronto and
Montreal are other city markets showing signs that homeownership is a
bit of a stretch for a typical household budget - particularly in the
single-family home segments. Other local markets tracked by RBC stand
within historically safe ranges.
RBC's housing affordability measure for the benchmark detached bungalow
in Canada's largest cities is as follows: Vancouver 82.3 per cent (up
0.1 percentage points from the previous quarter); Toronto 53.8 per cent
(up 0.8 percentage points); Montreal 40.1 per cent (up 0.6 percentage
points); Ottawa 39.1 per cent (up 0.1 percentage points); Calgary 38.7
per cent (up 0.8 percentage points); Edmonton 30.4 per cent (down 0.2
The RBC Housing Affordability Measure, which has been compiled since
1985, is based on the 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.
Highlights from across Canada:
British Columbia: affordability improves, but still has a long way to go
Homeownership in the province became slightly more affordable in the
first quarter, though the market has a long way to go before homebuyers
can experience more normal levels by historical standards. RBC measures
fell by 0.4 percentage points for bungalows and by 1.3 percentage
points for two-storey homes. The measure for condominiums remained
Alberta: slight erosion in affordability does little to deter homebuyers
High household incomes in the province kept homebuyers unfazed by the
slight erosion in affordability in the first quarter. Alberta's housing
market remains a bright spot in Canada despite the fact that
affordability measures rose slightly by 0.2 percentage points across
all housing types tracked by RBC.
Saskatchewan: biggest affordability improvement in Canada
Following a noticeable deterioration in the fourth quarter of 2012,
Saskatchewan's affordability levels registered the largest improvement
across Canada in kicking-off 2013. RBC measures fell by 1.7 percentage
points for two-storey homes, 1.0 percentage point for bungalows and 0.3
percentage points for condominiums.
Manitoba: second consecutive quarter of affordability deterioration
Manitoba's affordability levels deteriorated for the second straight
quarter in the first quarter of 2013, though levels are still not
considered dangerous for provincial homebuyers. The RBC measures rose
modestly across all housing categories - up 0.8 percentage points for
bungalows, 0.4 percentage points for condominiums and 0.2 percentage
points for two-storey homes.
Ontario: affordability conditions extend their recent trends
Ontario's affordability conditions in the first quarter of 2013 were by
and large an extension of recent trends - a deterioration in the single
family homes categories and a standstill for the condominium category.
RBC's measures for both bungalows and two-storey homes rose by 0.4
percentage points, while the measure for condominiums remained
Quebec: affordability variations a mixed bag
Affordability levels in Quebec remain modestly worse than they have been
historically for single family homes, which could be contributing to
homebuyers' hesitation in pulling the trigger on purchases over the
past year. In the first quarter of 2013, RBC measures were a mixed bag,
with bungalows and two-storey homes rising 0.4 percentage points and
0.1 percentage points, respectively, and condominiums declining 0.6
Atlantic Canada: cooling housing market keeps affordability attractive
Increasingly looser housing market conditions have reduced sellers'
pricing power, keeping affordability fairly attractive in Atlantic
Canada. First quarter measures rose very modestly, between 0.4 and 0.6
percentage points, for all categories tracked by RBC.
The full RBC Housing Trends and Affordability report is available
online, as of 8 a.m. ET today, at rbc.com/economics/market/.
For further information:
Craig Wright, Senior Vice-President and Chief Economist, RBC, 416 974-7457
Robert Hogue, Senior Economist, RBC, 416 974-6192
Elyse Lalonde, Manager, Corporate Communications, RBC Capital Markets, 416 842-5635