Alberta on watch but Canadian Household Finances in Better Shape than
TORONTO, March 14 /CNW/ - Housing affordability continued to deteriorate
through 2007, but relief is on the horizon for most markets in 2008, according
to the latest housing report released today by RBC Economics.
"Housing affordability deteriorated across the country in every quarter
in 2007, to end the year at its most unaffordable level since 1990," said
Derek Holt, assistant chief economist, RBC. "Back then, soaring interest rates
and a recession sparked much of the trouble. Today, a long upward trend in
house prices driven by sounder macroeconomic fundamentals, like job growth, is
primarily responsible for the deterioration in affordability."
The RBC Affordability measure captures the proportion of pre-tax
household income needed to service the costs of owning a home. During the most
recent quarter, affordability for all four housing classes eroded across the
country, with the exception of the cooling Alberta market where all housing
segments experienced a drop in average price that resulted in improved
affordability. Across the country, the standard condo remained the most
affordable housing type, requiring about 30 per cent of pre-tax household
income. A standard townhouse was next at 34.5 per cent, followed by a detached
bungalow at 42.5 per cent while a standard two-storey home remained the least
affordable housing type at 48 per cent.
According to the report, the delayed effects of higher fixed mortgage
rates continue to be a significant part of deteriorating affordability, but it
is expected that the popular five-year mortgage rate will drop a further
75 basis points by year-end. Going forward, falling mortgage rates, weakening
house price gains and decent income growth should all lead to improved
affordability across most markets.
The report also presents a comparison of Canadian and U.S. household
finances, and shows that Americans are still modestly richer, but much more
heavily leveraged and further in debt with less liquidity than Canadians.
That, in turn, makes them more vulnerable to ongoing credit market turmoil and
risks towards house prices than Canadians. In fact, the sharp depreciation in
the U.S. dollar over the past six years has made Canadians relatively richer
over time, by raising the value of what their wealth will buy in world markets
compared to that of their American counterparts.
In addition to major urban centres in Canada, the report includes housing
affordability conditions for a broader sampling of smaller cities across the
country. For these smaller cities, RBC has used a narrower measure of housing
affordability that only takes mortgage payments relative to incomes into
RBC's Affordability measure for a detached bungalow for Canada's largest
cities is as follows: Vancouver 74 per cent, Toronto 47 per cent, Calgary
42 per cent, Montreal 37 per cent and Ottawa 32 per cent.
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 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:
- British Columbia: Although affordability conditions deteriorated to
their worst level on record at the end of 2007, the province is
poised for some affordability relief in 2008 as a result of cooler
price gains and lower interest rates.
- Alberta: At the end of 2007, the province witnessed broad-based
affordability improvements across all housing segments for the first
time in over three years. Rapidly cooling prices put the province on
watch, but should result in improved affordability for 2008.
- Saskatchewan: Saskatchewan has become the new Alberta. Constraints in
the existing home market have pushed into overflowing demand in the
new home market. As the national leader for growth in housing starts,
house prices, residential building permits, and resale activity, the
province saw substantial erosion in affordability in 2007. In 2008,
affordability conditions should gradually stabilize.
- Manitoba: Housing markets across the province continue to heat up.
Resale markets continue to drive strong price gains, but as household
income continues to grow at the third-fastest rate in the country,
affordability conditions remain steady.
- Ontario: Even though housing affordability deteriorated across all
housing segments, the pace has slowed. The province should see
improvements in 2008 from a cooling economy, lower mortgage rates,
and softer price gains.
- Quebec: A generally balanced market has helped keep housing
affordability in check. In 2008, a slower pace of house price gains
and softer income growth should contribute to improved affordability
- Atlantic region: Affordability continued to erode in the final
quarter of 2007. A combination of income growth, moderate house price
gains and anticipated mortgage rate relief across all home segments
should improve affordability in 2008.
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, Economics, RBC, (416) 974-6192; Amy
Goldbloom, Economics, RBC, (416) 974-0579; Jackie Braden, Media Relations,
RBC, (416) 974-2124