Owning a single-family home more of a stretch in desirable locations
across Toronto, Vancouver and Montreal
TORONTO, Nov. 27, 2013 /CNW/ - Improved vitality in Canada's housing
market, together with an increase in mortgage rates this past summer,
set the stage for the second consecutive quarterly deterioration in
affordability in the third quarter of 2013, according to the latest Housing Trends and Affordability Report released today by RBC Economics. Still, RBC says that affordability
levels have yet to pose an immediate threat to the housing market's
overall health and stability.
"By the third quarter, stronger resale activity across Canada heated up
home prices a few degrees, though primarily in single-family home
categories. At the same time, Canadian bond yields rose in tandem with
those in the U.S., climbing in anticipation of the Fed tapering its
bond buying program," said Craig Wright, senior vice-president and
chief economist, RBC. "These factors translated into the first notable
increase in mortgage rates in Canada this summer since the second
quarter of 2011 and, ultimately, contributed to a slip in
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 the third quarter of 2013, affordability measures at the national
level rose modestly across all three categories of homes tracked. RBC's
measure for detached bungalows rose 0.7 percentage points to 43.3 per
cent, while the measure for two-storey homes climbed 0.6 percentage
points to 48.9 per cent. The measure for standard condominiums edged
only slightly higher by 0.1 percentage points to 28.0 per cent.
The RBC report notes that prices for bungalows and two-storey homes
continued to outpace those of condos in the third quarter, in turn
driving up ownership costs for single-family homes to near-record
levels relative to condominiums.
"The diverging, two-tiered trend in affordability further materialized
in the third quarter - the difference between measures for two-storey
homes and condos at the national level was the second-widest registered
since the mid-80s," said Wright.
RBC says that this trend largely reflects the strong demand for
single-family homes relative to a more limited supply in desirable
locations across Toronto, Montreal and Vancouver. Effectively,
single-family homes have become more of a luxury in these markets that
proportionally fewer households can afford. RBC notes that in other
markets across the country, affordability is generally in line with
historical norms for all housing categories.
The report indicates that the biggest risk to maintaining manageable
affordability levels in Canada is a sharp rise in interest rates, which
RBC says is unlikely at this point. RBC Economics forecasts that the
Bank of Canada will leave its overnight rate unchanged in 2014. Bond
yields - the main driver of fixed mortgage rates - is projected to
drift gently upward throughout the year ahead of what is likely to be a
gradual pace of policy tightening by both the U.S. and Canadian central
banks, RBC says.
RBC's housing affordability measure for the benchmark detached bungalow
in Canada's largest cities is as follows: Vancouver 84.2 (up 2.0
percentage points from the previous quarter); Toronto 55.6 (up 1.3
percentage points); Montreal 38.3 (up 0.3 percentage points); Ottawa
37.3 (up 0.4 percentage points); Calgary 33.7 (up 0.7 percentage
points); Edmonton 32.9 (up 0.5 percentage points).
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's housing affordability ebbs
Firmer market conditions in the third quarter propped up home prices in
the province, contributing to erosion in housing affordability levels.
RBC measures rose by 1.5 percentage points for bungalows, 1.2
percentage points for two-storey homes, and 0.8 percentage points for
Alberta's affordability remains attractive despite deterioration
Alberta's housing affordability deteriorated for the third consecutive
quarter in the third quarter, albeit modestly. This kept the province
in an attractive position relative to other provinces with respect to
affordable housing. RBC's measures rose 0.6 percentage points for
bungalows, 0.2 percentage points for two-storey homes and 0.1
percentage points for condominiums.
Saskatchewan's homeownership remains reasonably affordable
RBC measures for Saskatchewan edged slightly higher in the third
quarter, up 0.6 percentage points for two-storey homes, 0.2 percentage
points for condominiums, and 0.1 percentage points for bungalows.
Affordability in the province has mostly trended sideways since 2009,
suggesting that it likely has a neutral effect on home buying decisions
in the province, RBC says.
Manitoba's housing affordability mirroring the national picture
RBC's measures for Manitoba increased by almost the same magnitude as
Canadian measures for single family homes in the third quarter (0.6
percentage points for bungalows and two-storey homes), while the
measure for condos remained unchanged compared to a marginal rise of
0.1 percentage points in Canada overall.
Ontario's single-family homes are tougher to afford relative to condos
Ontario saw a further modest erosion in housing affordability in the
third quarter, largely concentrated in the single-family home segment.
RBC's measures rose by 0.9 percentage points for bungalows, 0.7
percentage points for two-storey homes and 0.2 percentage points for
Quebec's affordability reverses earlier improvements
Small improvements in Quebec's affordability levels that took place in
the second quarter were for the most part reversed in the third
quarter. RBC measures rose for two of three housing types tracked; up
0.6 percentage points for two-storey homes and 0.5 percentage points
for bungalows. The measure for condominiums remained unchanged.
Atlantic Canada's affordability levels remain within manageable range
Affordability in the region compares well against the rest of the
country, showing little movement in the third quarter, and keeping
within a very manageable range for homebuyers. RBC's measures edged
higher by 0.5 percentage points for two-storey homes and by 0.2
percentage points for bungalows. The measure remained unchanged for
condominiums in the region.
The full RBC Housing Trends and Affordability report is available
online, as of 8 a.m. ET today, at www.rbc.com/economics/economic-reports/canadian-housing-forecast.html.
For further information:
Craig Wright, Senior Vice-President and Chief Economist, RBC, 416 974-7457
Robert Hogue, Senior Economist, RBC Economics Research, 416 974-6192
Elyse Lalonde, Manager, Communications, RBC Capital Markets, 416 842-5635