TORONTO, May 20 /CNW/ - British Columbia's housing affordability took a
turn for the worse in the first quarter of 2011 after two consecutive
quarterly improvements, according to the latest Housing Trends and
Affordability report issued by RBC Economics Research. Frenzied pricing
in the Vancouver market raised the bar to home ownership for buyers
"Demand for housing in British Columbia continued on the road to
recovery in early 2011 at a pace that slightly exceeded the growth in
the number of properties put on the market," said Robert Hogue, senior
economist, RBC. "As a result, the slight tightening of supply of homes
for sale boosted the pricing power of sellers and negatively impacted
RBC's report notes that brisk activity in the Vancouver area lifted
British Columbia's home prices in the first quarter for all three
housing categories, with detached bungalows increasing by 3 per cent,
standard condominiums by 4.6 per cent and standard two-story homes by
5.5 per cent. Home price increases outpaced household income gains and
caused first quarter affordability measures for B.C., which capture the
proportion of pre-tax household income needed to service the costs of
owning a home, to move higher across all housing types (an increase
represents a deterioration in affordability).
The measure for the benchmark detached bungalow in the province rose to
60.2 per cent (an increase of 1.8 percentage points from the previous
quarter), the standard condominium to 32.8 per cent (up 0.8 of a
percentage point) and the standard two-story home to 67.9 per cent (up
1.2 percentage points).
Fuelled by strong demand for high-end properties, home prices in
Vancouver surged between 4.7 and 7.2 per cent in the first quarter of
"The Vancouver area market has experienced marked housing price
increases, which have shown few signs of letting up. We fear that the
market is becoming increasingly disconnected with local demand
conditions," said Hogue. "Deteriorating affordability raises the risk
of a painful market disruption in the area, especially when interest
rates begin to rise, as we expect in the coming months."
The majority of Canadian markets experienced weakened affordability in
the first quarter of 2011. Most notable was the sizeable deterioration
in British Columbia. More specifically, Vancouver saw significant gains
in property values, which drove the already elevated cost of
homeownership even higher. Quebec's homebuyers also faced noticeable
rises in ownership costs, while those in Atlantic Canada saw their
affordability advantage somewhat diminish. The picture remained mixed
in other areas of the country, with Ontario, Alberta and Saskatchewan
experiencing ups and downs in ownership costs, depending on the housing
"Despite the latest erosion in affordability, provincial levels
generally continue to stand near their long-term averages, suggesting
that owning a home remains affordable or, at worst, slightly
unaffordable across Canada - with Vancouver being a notable exception,"
RBC's housing affordability measure for a detached bungalow in Canada's
largest cities is as follows: Vancouver 72.1 per cent (up 3.4
percentage points from the last quarter), Toronto 47.5 per cent (up 0.8
of a percentage point), Montreal 43.1 per cent (up 2.0 percentage
points), Ottawa 39.0 per cent (up 0.4 of a percentage point), Calgary
35.9 per cent (up 0.9 of a percentage point) and Edmonton 31.5 per cent
(up 0.5 of a percentage point).
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. Alternative
housing types are also presented including a standard two-storey home
and a standard condominium. The higher the reading, the more costly it
is to afford a home. For example, an affordability reading of 50 per
cent means that homeownership costs, including mortgage payments,
utilities and property taxes, take up 50 per cent of a typical
household's monthly pre-tax income.
Highlights from across Canada:
Alberta: Stable or slightly declining prices, contributed to substantial
improvements in affordability in Alberta last year. While market
conditions have become more balanced in recent months, there remains
very little pricing momentum in the province. The RBC measures for all
housing categories in Alberta stood below their long-term average in
the first quarter.
There are tentative signs that the Calgary market is finally firming up.
Area homebuyers are benefiting from attractive affordability, which
remained the best among Canada's major cities.
Saskatchewan: Following solid performance in the second half of last year, some
softening in property values in the early months of 2011 led to a
further decrease in the cost of owning a home in Saskatchewan. The RBC
measures for bungalows and two-storey homes fell by 0.7 of a percentage
point in the first quarter, representing a third consecutive quarterly
improvement in affordability. Condominium apartments bucked this trend
and saw their affordability modestly deteriorate in the face of higher
Manitoba: Housing affordability continues to be attractive in Manitoba, with
little change registered in the first quarter. Measures rose by 0.1 of
a percentage point for detached bungalows, declined by 0.2 of a
percentage point for condominium apartments and stayed even for
two-storey homes. Manitoba is still one of only two provincial markets
(alongside Alberta) where affordability measures stand below long-term
averages for all housing categories.
Ontario: In the first quarter of 2011, home resales in Ontario increased at a
sustained and yet subdued rate, while home prices rose modestly
overall. Affordability stood very close to long-term averages, leaving
homebuyer demand largely unchanged in the province. RBC measures went
up for bungalows and condominiums (by 0.5 and 0.1 of a percentage
point, respectively), but down for two-storey homes (by 0.6 of a
percentage point). Market activity in Ontario is likely to face some
headwinds in coming months, given the latest changes in mortgage
lending rules and the expected rise in interest rates.
Somewhat tense market conditions in Toronto further fuelled appreciation
in property values and led to an erosion in affordability, as RBC
measures for detached bungalows and condominium apartments rose by 0.8
and 0.1 of a percentage point respectively.
Ottawa measures increased modestly for detached bungalows and two-storey
homes, while they remained the same for condominium apartments. As most
measures have moved above long-run averages, any further deterioration
in affordability will likely act to restrain demand in the area.
Quebec: Quebec homebuyers faced higher ownership costs in the first quarter,
which weighed significantly on affordability. RBC measures rose by 1.1
percentage points for detached bungalows and 1.3 percentage points for
two-storey homes, both representing the second largest increases behind
those recorded in British Columbia. All measures in Quebec stand
slightly above their long-term averages, corresponding to a moderate
strain in affordability in the province.
Montreal's affordability measures rose between 0.1 of a percentage point
and 2.8 percentage points in the first quarter of 2011, pushing levels
for all housing types above national and long-term averages for the
Atlantic Canada: In the first quarter, rebounding housing market activity has boosted
property values in Atlantic Canada. Home resales in the region climbed
solidly for the second consecutive period and further reversed some of
the declines that occurred last year. The downside has been a modest
fall in the region's affordability position. Affordability measures for
Atlantic Canada increased between 0.6 and 0.9 of a percentage point in
the latest period, although levels hovered near long-term averages and
remained among the lowest in the country.
The full RBC Housing Trends and Affordability report is available
online, as of 8 a.m. ET today at www.rbc.com/economics/market/pdf/house.pdf.
For further information:
Robert Hogue, RBC Economics Research, 416-974-6192
Elyse Lalonde, Media Relations, RBC, 416-974-8810