TORONTO, Feb. 25, 2014 /CNW/ - Following two consecutive quarters of
deterioration, housing affordability in Canada slightly improved in the
fourth quarter of 2013, according to the latest Housing Trends and Affordability Report released today by RBC Economics.
The RBC report notes that household incomes outpaced a modest rise in
mortgage carrying costs associated with buying a home at market value
in the fourth quarter, which contributed to the improvement in
affordability. Easing price gains in most markets across the country
and marginal increases in mortgage rates kept the rise in mortgage
carrying costs subdued.
"The relative strength in income gains in Canada offset the minor
increase in homeownership costs in the final months of 2013, meaning
that homes were more affordable for those looking to buy," said Craig
Wright, senior vice-president and chief economist, RBC. "When you look
at Canada's year-on-year affordability trend, 2013 was little changed
from 2012, and even from 2011 or 2010, for that matter. That being
said, this stationary trend also means that a divergence still exists -
owning a detached home at market value is more of a stretch for
homebuyers than owning a condo."
The RBC housing affordability measure captures the proportion of pre-tax
household income needed to service the costs of owning a specified
category of home at going market values (a decline in the measure
represents an improvement in affordability).
During the fourth quarter of 2013, affordability measures at the
national level eased modestly across all three categories of homes
tracked. RBC's measures for both detached bungalows and two-storey
homes edged lower by 0.2 percentage points to 43.1 per cent and 48.7
per cent, respectively. The measure for standard condominiums fell a
modest 0.1 percentage points to 28.0 per cent.
RBC says that any affordability related issues which cropped up in the
late stages of 2013 didn't seem to deter homebuyers; existing homes
were sold at a historically 'normal' pace in the fourth quarter with
resales just 0.1 per cent off the 10-year average, representing an 8.6
per cent gain over the same period in 2012. Still, resale activity fell
2.8 per cent from the third quarter of 2013, suggesting that the
surprising strength of last summer's rebound likely was overdone.
"Looking ahead in 2014, we expect home resales to rise 0.6 per cent to
461,000 units, keeping Canada's housing market near its recent
not-too-hot and not-too-cold levels," added Wright.
RBC anticipates that, as longer term interest rates begin to moderately
rise, the costs of owning a home at market value will gradually outpace
household incomes by late-2014, leading to increasingly strained
affordability in several markets across Canada, much like the current
trend in Toronto. Continued balance between demand and supply will
sustain generally modest price increases; however, it will be the
projected rise in interest rates applying most of the pressure on
ownership costs in the period ahead, says Wright.
"While we expect the Bank of Canada to leave its overnight rate
unchanged in 2014, we forecast an upward drift in bond yields—the main
driver of fixed mortgage rates—ahead of what is likely to be a gradual
pace of policy tightening by both the Fed and the Bank of Canada,"
RBC's housing affordability measure for the benchmark detached bungalow
in Canada's largest cities in the fourth quarter of 2013 is as follows:
Vancouver 81.6 (down 2.3 percentage points from the previous quarter);
Toronto 55.6 (up 0.1 percentage points); Montreal 38.8 (unchanged);
Ottawa 36.7 (down 0.4 percentage points); Calgary 33.8 (down 0.2
percentage points); Edmonton 33.3 (up 0.1 percentage points).
The RBC Housing Affordability Measure, which has been compiled since
1985, is based on the calculated 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.
It is important to note that RBC's measure is designed to gauge
ownership costs associated with buying a home at present market values.
It is not a representation of the actual costs incurred by current
owners, the vast majority of whom have bought in the past at
significantly different values than those prevailing in the latest
Highlights from across Canada:
Alberta's homes become even more affordable
Owning a home at market value in Alberta became slightly more affordable
for most housing categories in the final quarter of 2013 and continued
to compare favourably against historical and national averages. RBC's
measures fell by 0.5 percentage points for two-storey homes and by 0.2
percentage points for bungalows. The measure for condominiums edged
higher by 0.1 percentage points.
Saskatchewan's affordability trends sideways
Housing affordability in the province continued to play a predominantly
neutral role in home-buying decisions with levels standing close to
historical norms. RBC's affordability measures declined 1.1 percentage
points for two-storey homes and 0.2 percentage points for bungalows.
The measure for condominiums was up by 0.4 percentage points.
Manitoba's surge in listings lends a hand to affordability
A surge in newly listed homes for sale weakened demand-supply conditions
in Manitoba during the second half of 2013, which ultimately helped to
improve affordability with RBC measures for two-storey homes and
bungalows slipping by 1.1 percentage points and 0.6 percentage points,
respectively. The measure for condominiums rose by 0.8 percentage
Ontario's affordability picture remains largely unchanged
RBC's affordability measures for Ontario eased by 0.1 percentage points
for both bungalows and two-storey homes and stayed flat for
condominiums in the fourth quarter of 2013. Owning a single-detached
home at market value in the province continues to take a larger share
of household income compared to the historical average despite marginal
improvements for the first time in a year.
Quebec's affordability conditions little changed from the third quarter
The only observable variation in affordability conditions in Quebec
during the fourth quarter was in the two-story homes category, with
RBC's measure inching higher by 0.2 percentage points. The measures for
bungalows and condominium apartments remained unchanged. All measures
continued to stand near their long-run averages.
Atlantic Canada retains decent affordability conditions
Housing affordability in the region remained at generally neutral levels
in the fourth quarter, and still compared favourably against the
majority of markets across Canada. RBC's measures fell by 0.6
percentage points for two-storey homes and by 0.1 percentage points for
bungalows. The measure for condominiums rose by 0.2 percentage points.
The full RBC Housing Trends and Affordability report is available
online, as of 8 a.m. ET today, at rbc.com/economics/economic-reports/canadian-housing-forecast.html.
For further information:
Craig Wright, RBC Economics Research, 416-974-7457
Robert Hogue, Senior Economist, RBC Economics Research, 416-974-6192
Elyse Lalonde, Communications, RBC Capital Markets, 416-842-5635