TORONTO, Feb. 24 /CNW/ - Higher home prices in the final quarter of 2010
contributed to some deterioration in Quebec's housing affordability
following meaningful improvements in the previous quarter, according to
the latest Housing Trends and Affordability report released today by
"Home resales improved in the latter part of last year contributing to a
tightening in the market that ultimately gave sellers a stronger hand
in negotiating prices, particularly for two-storey homes," said Robert
Hogue, senior economist, RBC. "We expect that the modestly strained
affordability levels in Quebec will further deteriorate in the period
ahead once interest rates rise."
The RBC Housing Affordability Measures for Quebec capture the provinces
proportion of pre-tax household income needed to service the costs of
owning a home (a decrease represents improvement in affordability).
Price gains dominated the positive effects of lower mortgage rates and
rising household income on affordability in the fourth quarter for all
housing types except detached bungalows (where a small improvement was
The RBC Measure for the standard two-storey home rose 0.1 percentage
points from the previous quarter to 41.9 per cent and for the standard
condominium by 0.2 percentage points to 28.9 per cent, while the
benchmark detached bungalow moved down to 34.5 per cent (a fall of 0.6
percentage points). The levels of all Measures modestly exceeded
long-term averages in the province.
The RBC report notes that property values in the Montreal-area market
continued to appreciate steadily in the latter part of 2010 despite the
lack of clear direction in resale activity since last summer and a
recent surge in the supply of homes available for sale.
"The listless housing demand likely reflects both the erosion in housing
affordability in the Montreal area this past year and the tremendous
strength that was seen in early 2010, which is taking longer to
unwind," added Hogue.
Although there were modest declines in the measures for two-storey homes
(down 0.2 percentage points) and detached bungalows (down 0.4
percentage points), levels for all housing types remain above long-term
averages and where they were a year ago.
"Strained affordability is holding back some Montreal homebuyers at this
point," noted Hogue. "That being said, market conditions have become
less favourable to sellers, which will likely minimize further
near-term price appreciation."
Elsewhere in the country, a majority of provinces saw improvements in
affordability in the fourth quarter, most notably in Alberta where
falling home prices once again contributed to lower the bar for
affording a home. Only the standard two-storey benchmark became less
affordable in Ontario and Quebec, as did the standard condominium
apartment in Quebec and the Atlantic region.
RBC's Housing Affordability Measure for a detached bungalow in Canada's
largest cities is as follows: Vancouver 68.7 per cent (down 0.4
percentage points from the last quarter), Toronto 46.8 per cent (down
0.5 percentage points), Montreal 41.3 per cent (down 0.4 percentage
points), Ottawa 38.7 per cent (up 0.5 percentage points), Calgary 34.9
per cent (down 3.1 percentage points) and Edmonton 31.0 per cent (down
2.4 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. 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:
British Columbia: Buying a home in B.C. became slightly more affordable in the fourth
quarter of 2010, due primarily to a small drop in mortgage rates. After
experiencing some declines in the previous quarter, home prices rose
modestly for most housing categories; condominium apartments bucked the
trend, however, and depreciated slightly. Prices were supported by a
tightening in market conditions with home resales picking up smartly
following substantial cooling in the spring and summer that saw sellers
lose their edge in setting property values. Demand and supply in the
province are judged to be quite balanced at this point. RBC's
Affordability Measures fell between 0.8 and 1.0 percentage points in
the fourth quarter which came on the heels of much more substantial
drops (1.7 to 4.8 percentage points) in the third quarter.
Notwithstanding these declines, affordability remains poor and will
weigh on housing demand going forward.
Alberta: Alberta officially became the most affordable provincial market in the
country in the fourth quarter, according to the RBC Measures which fell
once again by 1.0 to 2.4 percentage points, extending their declines
since late-2007. In addition to the lower mortgage rates, the further
depreciation of home prices contributed to lowering homeownership
costs. Property values were negatively affected by a substantial
downswing in demand in the spring and early summer, which put buyers in
the drivers' seat. The significant improvement in affordability is near
the end of its line, however, as demand has shown more vigour in recent
months - alongside a provincial economy that is gaining more traction -
and the market has become better balanced. RBC expects that this will
stem price declines this year, thereby removing a potential offset to
the negative effect of projected rise in interest rates on
Saskatchewan: The provincial housing market finished 2010 on an enviable note as
affordability improved even though home prices, for the most part, rose
slightly in the fourth quarter. Generally, the price increases more
than reversed declines in the previous period but were too small to
negate the beneficial effect of lower mortgage rates. The home resale
market gained back solid forward momentum in the second half of 2010,
notwithstanding some softening in the final months, which
re-established a stronger balance between demand and supply. The RBC
Measures fell between 0.6 and 1.1 percentage points in the quarter,
although the levels continue to be modestly above historical averages
in the province. RBC projects the Saskatchewan market will take its
current affordability position in stride as a rebound in provincial
economic growth and continued strong migration inflows will support
housing demand this year.
Manitoba: Manitoba's market enjoyed the best of both worlds in the fourth quarter
of 2010 as home price were higher but ownership costs were lower.
Thanks to lower mortgage rates in the quarter and continued growth in
household income, the negative effect of small gains in property values
on affordability was more than offset. The RBC Measures eased between
0.1 and 0.6 percentage points in the fourth quarter, keeping Manitoba
among the only two provincial markets in Canada (with Alberta) in which
Affordability Measures stand below long-term averages for all housing
categories. Sales of existing homes ramped up considerably in the fall,
reaching near historical peaks by December. Housing demand is being
boosted by the strongest net international immigration in the province
since the mid 1950s and by improved job prospects - Manitoba boasts the
lowest unemployment rate in Canada (as of the fourth quarter of 2010)
and RBC expects this to continue in 2011.
Ontario: Concerns last year that the housing market would falter have now largely
dissipated as home resale activity picked up smartly in the fall and
property values resumed their appreciation trend in the closing months
of 2010. The slowdown in market activity in the spring and summer last
year largely reflected various transitory factors - including the
introduction of the HST and changes in mortgage lending rules - that
brought demand forward to the start of the year. The silver lining of
this slowdown, however, has been an improvement in affordability. The
RBC Measures edged lower for the second consecutive time for most
housing categories in the fourth quarter, down by 0.2 to 0.3 percentage
points. The only exception was two-storey homes, which became
marginally less affordable amid notable price gains. RBC expects
affordability will play a neutral role for demand in Ontario with RBC
Measures close to their long-run average.
Atlantic Canada: Home resale activity sputtered late in 2010 and reversed some of the
gains achieved at the end of the summer and early fall. This has not
disrupted property values in the fourth quarter as home prices
generally appreciated; yet, housing affordability improved for most
housing categories because declines in interest rates provided a
dominant offset. Only condominium apartments saw a slim deterioration
in affordability as the RBC Measures rose by 0.1 percentage point
compared with declines of 0.5 percentage points for detached bungalows
and two-storey homes. Affordability levels continue to be mostly
attractive in Atlantic Canada from both historical and cross-country
perspectives. RBC projects that is likely to remain so in the near-term
despite our expectation of higher interest rates. Market conditions
have recently swung in favour of buyers which will exert downward
pressure on prices in coming months.
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