Low interest rates keep affordability-related stress in Canada's housing
market to a minimum
Affordability improved modestly in most major city markets in the final
quarter of 2012
TORONTO, Feb. 25, 2013 /CNW/ - Canada's homeownership costs fell slightly in the second consecutive
quarter in the last quarter of 2012, according to the latest Housing Trends and Affordability Report issued by RBC Economics Research. The RBC report notes that small
declines in mortgage rates and in home prices across several markets
resulted in an overall improvement in affordability.
"Exceptionally low interest rates have been the key factor keeping home
affordability from reaching dangerous levels in recent years," said
Craig Wright, senior vice-president and chief economist, RBC.
"Residential property values are elevated in Canada and, for many
households, ownership remains accessible only because of rock-bottom
mortgage rates. It could be a different story if interest rates were to
move swiftly and significantly higher."
RBC anticipates that the Bank of Canada will leave its overnight rate
unchanged at one per cent through 2013 and gradually begin to increase
it in early 2014. At the same time, the Canadian economy is expected to
be on stronger footing, providing some offset to negative effects that
might materialize in the housing market from a slow and steady rise in
interest rates, says RBC.
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. During the fourth
quarter of 2012, measures at the national level fell in all three
categories of homes tracked (a decline represents an improvement in
RBC's measures for both detached bungalows and condominium apartments
eased by 0.2 percentage points to 42.1 per cent and 28.0 per cent,
respectively; the measure for the two-storey home fell by 0.3
percentage points to 47.8 per cent. Measures still modestly exceeded
their historical averages, though national figures are somewhat
exaggerated by extremely poor affordability conditions in the
Despite balanced demand and supply conditions in the majority of local
markets in Canada, softer homebuyer demand since the middle of 2012 has
weighed on home prices, with modest month-to-month declines becoming
common occurrences since the summer.
"We expect overall housing market activity to remain subdued this year,"
added Wright. "That said, we believe that there is scope for some mild
strengthening from recent activity levels, as the negative effects of
the mortgage insurance rule changes, implemented in July 2012 gradually
RBC's housing affordability measure for the benchmark detached bungalow
in Canada's largest cities is as follows: Vancouver 82.2 per cent (down
2.6 percentage points from the previous quarter); Toronto 52.8 per cent
(down 0.4 percentage points); Montreal 39.3 per cent (down 0.9
percentage points); Ottawa 38.8 per cent (down 0.5 percentage points);
Calgary 38.1 per cent (up 0.2 percentage points) and Edmonton 30.7 per
cent (down 0.1 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: housing affordability improving, still has to go the distance
While housing affordability in British Columbia still has a long way to
go before reaching less stressful levels, homebuyers in the province
received a welcome reprieve in the fourth quarter. RBC measures fell by
1.1 percentage points for condominium apartments and 1.0 percentage
point for detached bungalows. The two-storey home category experienced
a small increase (0.4 percentage points), though this followed a
substantial decline in the third quarter.
Alberta: vibrant market bolstered by attractive affordability
Brisk demand for the province's housing in 2012 was supported by a
strong provincial economy, accelerating population growth and
attractive affordability. Further improvement was registered in the
fourth quarter with measures falling between 0.1 and 0.2 percentage
Saskatchewan: affordability conditions buck the national trend
Tight market conditions at the beginning of 2012 had a lasting impact on
home prices in Saskatchewan, which climbed at some of the faster paces
in Canada in the fourth quarter. Rising property values caused
affordability to deteriorate in the fourth quarter with measures
increasing between 0.5 and 1.1 percentage points.
Manitoba: market vigour unhindered by slight affordability deterioration
Manitoba's housing market registered a banner year in 2012 with a record
14,000 existing homes sold, indicating that housing affordability
levels had little dissuasive effect on homebuyers in 2012. Although
measures for detached bungalows and condominiums deteriorated in the
fourth quarter, measures for two-storey homes remained unchanged. RBC's
measures for Manitoba continued to rank slightly above their long-term
average, suggesting that any affordability strain is likely minimal at
Ontario: affordability largely improves, tempering overall market conditions
The tightness that characterized Ontario's housing market in the early
part of 2012 gave way and a more balanced market was observed in the
second half of 2012, improving overall affordability conditions in the
province. RBC's measures inched lower by 0.1 and 0.3 percentage points
for the detached bungalow and condominium apartment, respectively,
while the measure for two-storey homes rose marginally by 0.1
Quebec: generally improving affordability tone is sustained
Quebec's housing affordability improved, for the most part, for the
third quarter in a row in the fourth quarter, yet this did little to
stimulate homebuyer demand as resale activity continued to cool in the
province. RBC measures fell for two-storey homes (by 1.1 percentage
points) and detached bungalows (by 0.3 percentage points), but rose for
condominium apartments (by 0.4 percentage points).
Atlantic Canada: housing continues to be affordable
Affordability in the Atlantic region received another boost in the
fourth quarter, with RBC measures falling for two-storey homes (by 1.0
percentage points) and detached bungalows (by 0.5 percentage points),
keeping levels well below their respective national averages. The
measure for condominium apartments rose modestly by 0.3 percentage
points, though this followed a more sizable drop in the previous
The full RBC Housing Trends and Affordability report is available
online, as of 8 a.m. ET today, at rbc.com/economics/market/.
For further information:
Craig Wright, Senior Vice-President and Chief Economist, RBC, 416 974-7457
Robert Hogue, Senior Economist, RBC, 416 974-6192
Elyse Lalonde, Manager, Communications, RBC Capital Markets, 416 842-5635