TORONTO, Feb. 24 /CNW/ - Thanks primarily to small declines in mortgage
rates, buying a home in British Columbia became a little more
affordable - or rather less unaffordable - in the fourth quarter of
2010, according to the latest Housing Trends and Affordability report
issued today by RBC Economics Research.
Rates for fixed-rate mortgages fell slightly in the closing months of
last year, offsetting the effect of higher prices in British Columbia.
After experiencing some declines in the previous quarter, home prices
in the province rose modestly for most housing categories in the fourth
quarter, with the exception of condominium apartments which depreciated
The RBC report notes that housing market supply and demand in B.C. are
currently relatively balanced.
"Prices in recent months were supported by a tightening in market
conditions in the fall with home resales picking up smartly following
substantial cooling in the spring and summer that resulted in sellers
losing their edge in setting property values," said Robert Hogue,
senior economist, RBC. "While affordability measures have eased in the
province over the past two quarters, affordability still remains poor
in B.C. and will weigh on housing demand going forward."
Fourth quarter affordability measures in the province fell between 0.8
and 1.0 percentage points in the fourth quarter on the heels of the
much more substantial drops (1.7 to 4.8 percentage points) that were
recorded in the third quarter.
The RBC Housing Affordability Measures for B.C., which capture the
province's proportion of pre-tax household income needed to service the
costs of owning a home, declined across all housing types in the fourth
quarter of 2010 (a decrease represents an improvement in
affordability). The measure for the benchmark detached bungalow in the
province moved down to 58.5 per cent (a drop of 0.8 percentage points
from the previous quarter), the standard condominium to 32.2 per cent
(down 0.9 percentage points) and the standard two-storey home to 66.9
per cent (down 1.0 percentage point).
Homeownership costs in Vancouver eased in the final quarter of 2010,
marking the second quarterly decline in a row after five consecutive
quarters of increases. Home prices mostly rose, however, and dampened
the affordability-improving benefits of lower mortgage rates. Housing
market activity picked up late last year from the summer 2010 lows, yet
resales remain well below the levels that prevailed in the five years
prior to the 2008 downturn.
Affordability measures in Vancouver fell 0.4 to 1.3 percentage points
(depending on the housing type) in the fourth quarter. These declines
were much smaller relative to the 2.0 to 5.3 percentage point drops
recorded in the preceding period when a decline in mortgage rates
combined with weaker prices for most housing categories.
"Vancouver-area homebuyers breathed a small sigh of relief in last
quarter of 2010 as the still very high homeownership costs eased
slightly," said Hogue. "Affordability measures in the area remain well
above their long-run average and we believe that poor affordability
will continue to weigh on local demand, causing a high degree of stress
on the market."
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:
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.
Quebec: Higher home prices in the fourth quarter of 2010 caused some
deterioration in affordability following meaningful improvement in the
previous period. Home resales strengthened in the latter part of 2010,
contributing to tightened market conditions that gave sellers a
stronger hand in negotiating prices, particularly for two-storey homes.
Price gains and rising household income dominated the positive effects
of lower mortgage rates on affordability in the fourth quarter for all
housing types except detached bungalows (where a small improvement was
registered). RBC Measures rose marginally by 0.1 to 0.2 percentage
points for two-storey homes and condominium apartments, and fell by 0.6
percentage points for detached bungalows; however, the levels of all
Measures still modestly exceeded long-term averages in the province.
RBC expects that modestly strained affordability in Quebec will further
deteriorate in the period ahead when interest rates rise.
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