TORONTO, Aug. 28, 2014 /CNW/ - Canada's housing became more affordable
in the second quarter of 2014 thanks in large part to a decline in
mortgage rates, according to the latest Housing Trends and Affordability Report issued by RBC Economics Research.
"It was more affordable to own a home in virtually all provincial and
major local markets across Canada in Q2, and in the face of solid price
gains no less," said Craig Wright, senior vice-president and chief
economist, RBC. "We had anticipated a rebound in activity from earlier
this year when the harsher than normal winter weather took hold, but
the biggest drop in fixed mortgage rates in almost four years and
resulting improvement in affordability also gave the Canadian housing
market a boost of extra energy."
In May and June, Canada's home resales picked up and contributed to a
9.4 per cent seasonally-adjusted advance in the second quarter, which
was the strongest quarterly gain in nearly four years. RBC says that
unadjusted for seasonal factors, resales in Q2 were the second-best
ever on record.
The RBC report indicates that sellers also came out from the sidelines
with a surge in new listings by 8.0 per cent in the second quarter,
following three consecutive quarterly declines. Greater supply of homes
for sale helped to unclog markets such as Toronto, where a lack of
'quality' listings earlier this year stifled activity.
"Stats rolling in suggest that the upward momentum in Canada's housing
market is being sustained and further, that a sharp slowdown is not
imminent," said Wright. "In the coming year however, we do expect the
market will gear down its resale levels and that the rate of price
increases will soften."
The report says that Canada's historically low interest rates are not
sustainable and expects that longer term rates will begin to rise later
this year in anticipation of the Bank of Canada's move to tighten
policy in 2015. It adds that rising rates would erode housing
affordability across Canada and weigh on homebuyer demand; though
continued growth in household income would somewhat offset the impact.
"We remain of the view that any rise rates will be gradual and unlikely
to unhinge either overall affordability levels or the market - we
expect a cooling in activity, not a crash," added Wright.
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 (a fall in the
measure represents an improvement in affordability).
During the second quarter of 2014, affordability measures at the
national level fell by 0.9 percentage points to 48.0 per cent for
two-storey homes, by 0.6 percentage points to 42.5 per cent for
detached bungalows and by 0.4 percentage points to 27.4 per cent for
The RBC report says that affordability levels in Canada remain little
changed from where they were a year ago with the overall trend for the
past few years remaining stable. At the local level, Vancouver
continues to experience sky-high prices - especially for single-family
homes - and the poorest affordability levels in the country. Toronto
sees deteriorating trends in affordability with levels becoming
increasingly strained, predominantly for single-family homes. RBC says
that virtually all other markets across Canada stand at levels close to
historical averages, which indicates that negative
affordability-related pressures should not impact homebuyer demand at
RBC's housing affordability measure for the benchmark detached bungalow
in Canada's largest cities in the second quarter of 2014 is as follows:
Vancouver 81.8 (down 0.3 percentage points from the previous quarter);
Toronto 55.9 (down 0.2 percentage points); Montreal 37.3 (down 1.6
percentage points); Ottawa 36.0 (down 0.4 percentage points); Calgary
33.6 (down 0.8 percentage points); Edmonton 31.7 (down 1.1 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: affordability broadly improves
Housing affordability in the province improved across the board in the
second quarter, with two-storey homes and condos reaching their most
attractive levels since late 2009. RBC's affordability measures for
B.C. fell between 0.9 and 2.0 percentage points. Still, owning a home
at market price in an area such as Vancouver continued to be very
difficult for an average household to afford.
Alberta: housing affordability remains attractive
Escalating prices in the province were largely taken in stride by
Alberta homebuyers in Q2 as lower mortgage rates and solid growth in
household incomes provided offset. Affordability in the province
improved modestly with RBC measures easing between 0.2 and 0.9
Saskatchewan: homebuyers face little undue affordability pressure
The provincial housing market rebounded strongly in the second quarter
with home resales jumping to a new record-high. At the same time, RBC's
affordability measures for Saskatchewan fell between 1.3 and 0.8
percentage points, and stood close to their historical averages.
Manitoba: new home listings surge; affordability plays largely neutral
The big housing market story in Manitoba was a surge of homes being
offered for sale with new listings growing to levels almost 14 per cent
above where they were a year ago. RBC's affordability measures fell
between 0.5 and 1.5 percentage points but remained close to long-run
averages, suggesting that affordability likely plays a neutral role in
home buying decisions in the province.
Ontario: homebuyers undisturbed by affordability strains
Housing affordability changed very little in Ontario in the second
quarter and homebuyers did not appear to be overly concerned by the
fact that affordability remained somewhat stretched for single-family
homes. Lower rates were the main factor contributing to marginal
declines in RBC's measures for Ontario, which edged lower between 0.1
and 0.2 percentage points.
Quebec: improved affordability helps halt housing market slide
Quebec's housing market activity, which had been falling since early
2012, stabilized in Q2. Home resales rose modestly and the supply of
homes for sale grew. Second quarter affordability measures for the
province eased for all housing types - between 0.9 and 1.8 percentage
points. This improvement in affordability likely helped stabilize the
market at the margin in the latest quarter.
Atlantic Canada: attractive affordability conditions
The region's housing affordability conditions improved quite noticeably
in the second quarter thanks to lower mortgage rates and subdued price
pressures. RBC's measures for Atlantic Canada dropped between 0.9 and
1.8 percentage points.
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