Signs of moderation exist and softer price growth ahead
TORONTO, June 15 /CNW/ - Alberta's housing affordability continued to
erode in the first quarter of 2007, according to a new report released today
by RBC Economics.
Economic fundamentals including strong wages, low unemployment and net
provincial migration are still favouring Alberta's housing market. "The
current level of affordability does not pose a big threat, but does signal
that softer price growth lies ahead," said Derek Holt, assistant chief
economist, RBC. "Alberta's housing market firmly favours sellers, but the
frenzied pace of activity exhibited through much of 2006 looks to have topped
out with some signs of moderation."
The RBC Affordability report captures the proportion of pre-tax household
income needed to service the costs of owning a home. It stood at 37 per cent
for a detached bungalow, 26 per cent for a standard condo, and a standard
townhouse is at 29 per cent. A standard two-storey home remains the least
affordable with a reading of 41 per cent.
RBC notes that in Alberta housing resale activity is cooling, new
listings are rising, and the pace of price growth is slowly trending lower
from very high rates.
Construction markets are still active but it is expected that residential
construction will soften as major cost escalations and a rising mortgage rate
environment weaken demand alongside land, labour, and materials shortages.
According to the report, at 40 per cent, Calgary's housing affordability
improved significantly for two-storey homes, detached bungalows and condos.
However, the situation was different in Edmonton, where affordability
deteriorated. The divergence in affordability trends between the two cities
can be mainly attributed to house prices and the fact that Calgary is further
up the curve than Edmonton in terms of hefty price gains already realized.
Though its annual gains are still robust (up 30 to 40 per cent), Calgary saw
quarterly price gains decelerate significantly and even posted a decline for
two-storey and detached homes. Edmonton saw the pace of house price growth
accelerate in the first quarter of 2007 with significant double-digit
RBC's Affordability measure for a detached bungalow in Canada's largest
cities is as follows: Vancouver 68 per cent, Calgary 40 per cent, Toronto 43
per cent, Montreal 35 per cent and Ottawa 30.5 per cent.
Also included in the report are housing affordability conditions for a
broader sampling of select cities across the country. For these select cities,
RBC has used a narrower measure of housing affordability that only takes
mortgage payments relative to income into account.
The Housing Affordability measure, which RBC has compiled since 1985, is
based on the costs of owning a detached bungalow, a reasonable property
benchmark for the housing market. Alternative housing types are also presented
including a standard two-storey home, a standard townhouse and a standard
condo. The higher the reading, the more costly it is to afford a home. For
example, an Affordability Index 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: Solid income gains outstripped softer house price
growth to make way for another slight improvement in housing
affordability for two-storey homes. The improvement is welcome relief
for many prospective homeowners attempting to tap into the already
elevated property market. Affordability of the remaining three home
segments deteriorated as prices continued to move higher.
- Saskatchewan: After several years of stability, Saskatchewan's
housing affordability eroded sharply in the first quarter of 2007.
Two-storey homes were hit the hardest, as the province's housing
market jumped into a severe state of excess demand. An influx of
migrants, which is at a 25 year high, complemented a pick-up in wage
growth and caught the housing supply off guard, resulting in soaring
prices and a rapid decline in affordability. Caution is warranted
because the staying power of this shift in migration is uncertain at
this early stage.
- Manitoba: Manitoba still remains the most affordable province to own
a home in the country, despite the fact that all four housing types
saw a decline in affordability. The risk of a market slowdown for
Manitoba is much less pronounced, compared to other western
- Ontario: Healthy income gains were offset by modest house price
growth, creating very little movement in affordability across all
housing classes. Annual house price gains continue to bounce between
three-to-five per cent, as Ontario's housing market continues to
- Quebec: Housing affordability modestly deteriorated across all
housing segments. However, Quebec's housing market has had a soft
landing as house price gains have leveled off while remaining
positive. Despite softer housing markets that are expected to persist
through most of 2007, homeowners can still look to retain the equity
they have accumulated in their homes.
- Atlantic region: Atlantic Canada's two-storey home segment continued
to post improvements in affordability for the first quarter of 2007
while condos, detached bungalows and townhouses witnessed a slight
deterioration in affordability.
The full RBC Housing Affordability report is available online, as of
8 a.m. E.D.T. today at www.rbc.com/economics/market/pdf/house.pdf.
For further information:
For further information: Derek Holt, RBC Economics, (416) 974-6192;
Jackie Braden, RBC Media Relations, (416) 974-2124