TORONTO, Nov. 22, 2012 /CNW/ - Canada's housing market became more affordable in the third quarter of
2012 as a result of modest declines in home prices and further gains in
household incomes, according to the latest Housing Trends and Affordability Report issued by RBC Economics Research. The longstanding affordability trend,
however, is less clear.
"The broad affordability picture has been somewhat stationary over the
last two years, alternating between periods of improvement and
deterioration, resulting in an affordability trend that is, on net,
essentially flat," said Craig Wright senior vice-president and chief
economist, RBC. "We saw this directionless trend in the third quarter
as housing affordability fully reversed the mild erosion witnessed in
the first half of the year."
RBC notes that Canada's housing market cooled further in the third
quarter. This was in part because of the effects of a fourth round of
rule changes to government-backed mortgage insurance, which effectively
raised the bar for first-time homebuyers. RBC expects the restrictive
effects from these modifications to ease by the end of the year and
that resale activity will stabilize in 2013.
Exceptionally low interest rates have been the key factor in keeping
affordability levels from reaching dangerous heights in Canada in
recent years. RBC indicates that as interest rates are currently at
generational lows, the scope for increases is substantial in the coming
"Assuming that the European crisis remains somewhat in check, and that
the U.S. fiscal challenges are addressed, we anticipate that the Bank
of Canada will begin gradually raising the overnight rate in the second
half of next year," added Wright. "This, along with the expected
continued growth in household income, will lessen the risk of marked
erosion in affordability."
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 third
quarter of 2012, measures at the national level fell in all three
categories of homes tracked (a decline represents an improvement in
affordability). RBC's measure for the benchmark detached bungalow edged
lower by 1.0 percentage point to 42.0 per cent, while the two-storey
homes category fell by 1.2 percentage points to 47.8 per cent; the
measure for condominium apartments eased by 0.6 percentage points to
28.0 per cent.
In spite of this improvement, RBC measures continue to modestly exceed
their long-term averages, though national figures are somewhat inflated
by extremely poor affordability in the Vancouver-area market.
"The cost of owning a home took a smaller bite out of household
pocketbooks in the third quarter as home prices fell - most notably in
the Vancouver area, though it remains the least affordable market in
Canada by a wide margin," explained Wright.
Where housing affordability stands in Canada
RBC's housing affordability measure for the benchmark detached bungalow
in Canada's largest cities is as follows: Vancouver 83.2 per cent (down
5.8 percentage points from the previous quarter); Toronto 52.4 per cent
(down 0.7 percentage points); Montreal 40.2 per cent (up 0.1 percentage
points); Ottawa 38.7 per cent (down 0.4 percentage points); Calgary
38.3 per cent (down 0.7 percentage points) and Edmonton 31.1 per cent
(down 0.6 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: Affordability hurdles still tough to clear
British Columbia's housing market experienced improvements in the third
quarter of 2012, and yet, affordability conditions remained the poorest
across Canada. RBC measures fell between 2.0 percentage points and 3.7
percentage points, the largest drops across Canada. The situation
remains less severe elsewhere in the province; the share of income
needed to carry ownership costs in Victoria, for instance, is almost
half the share in Vancouver for some housing types.
Alberta: Attractive affordability contributes to market renaissance
Alberta's housing market enjoyed firm and steady resale activity,
balanced demand-supply conditions, moderate home price increases, and
improved housing affordability. Third quarter affordability measures
for the province edged lower - between 0.2 percentage points and 0.4
percentage points -remaining below their long-term and the national
Saskatchewan: Little evidence of affordability strain
Significant deteriorations in housing affordability in the second
quarter in Saskatchewan were largely reversed in the third with RBC
measures in the province falling between 0.9 percentage points and 1.3
percentage points. The measures stood just slightly above their long
term averages for all housing categories, indicating little in the way
of undue affordability induced strain on the market.
Manitoba - Market losing some of its steam; minimal pressure on affordability
Declining housing prices spurred a notable improvement in housing
affordability in Manitoba over the third quarter. RBC measures fell
between 0.6 percentage points and 1.6 percentage points, which fully
unwound the deterioration that occurred in the prior quarter.
Provincial affordability levels sit slightly higher than their averages
since the mid 1980s, but remain well below the corresponding national
Ontario: More balanced conditions help to ease affordability stress
Ontario's housing affordability eased somewhat in the third quarter, but
remains under mild pressure, most notably in the two-storey home
segment. RBC measures declined between 0.5 percentage points and 1.1
percentage points in the province, which, in effect, rolled back the
two consecutive quarterly increases that took place in the first half
of this year.
Quebec: Second straight affordability improvement
Housing affordability improved for the second straight quarter in
Quebec, with RBC's measures edging lower across all housing types in
the province, between 0.6 percentage points and 0.8 percentage points,
in the third quarter. For the most part, levels are only slightly worse
than the average historical level, indicating that prospective
homebuyers in Quebec may feel minimally stretched budget-wise, if they
bought a home at current market prices.
Atlantic: Affordability position remaining quite stable
Housing affordability in Atlantic Canada improved slightly across the
board, with RBC measures in the region inching lower by 0.2 percentage
points to 0.7 percentage points relative to the previous quarter.
Affordability measures have been reasonably stable over the past three
years in the region, showing no discernable trends on either the up or
The full RBC Housing Trends and Affordability report is available
online, as of 7 a.m. ET today, at rbc.com/economics/market/.
Image with caption: "RBC Economics - Where Housing Affordability Stands in Canada Benchmark Detached Bungalow - Third Quarter 2012 (CNW Group/RBC)". Image available at: http://photos.newswire.ca/images/download/20121122_C2526_PHOTO_EN_21048.jpg
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, Corporate Communications, RBC Capital Markets,