TORONTO, May 20 /CNW/ - Canadian housing affordability eroded in the
first quarter of 2011, following improvements in the last half of 2010,
according to the latest Housing Trends and Affordability report
released today by RBC Economics Research. Home price gains in the
majority of Canada's key markets were the main driver of the decline in
housing affordability, while flat mortgage rates played a neutral role
this time. In the previous two quarters, declines in mortgage rates
were the principal source of improvement in affordability.
"We expect that the Bank of Canada will soon resume its campaign to
normalize its interest rate policy, which will adversely impact housing
affordability in Canada," said Robert Hogue, senior economist, RBC.
"Continued growth in household incomes, however, will likely soften the
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. During the first quarter of 2011, measures at the
national level inched higher for all three major housing types tracked
by RBC (increases represent a deterioration in affordability).
The detached bungalow benchmark measure rose by 0.7 of a percentage
point to 40.5 per cent, while both the standard two-storey home and the
standard condominium measure rose by 0.2 of a percentage point, to 46.2
and to 27.7 per cent respectively, in the first quarter.
"Interest rates will likely soon start to rise again, leading to a
period of steady increases in homeownership costs. This, in turn, will
contribute to a flattening in Canadian housing demand going forward,"
said Hogue. "We could experience some turbulence this spring and
summer, given that new tighter mortgage lending rules in March and
April likely shifted home buying activity to earlier in the year."
The majority of Canadian markets experienced weakened affordability in
the first quarter of 2011. Most notable was the sizeable deterioration
in British Columbia. More specifically, Vancouver saw significant gains
in property values, which drove the already elevated cost of
homeownership even higher. Quebec's homebuyers also faced noticeable
rises in ownership costs, while those in Atlantic Canada saw their
affordability advantage somewhat diminish. The picture remained mixed
in other areas of the country, with Ontario, Alberta and Saskatchewan
experiencing ups and downs in ownership costs, depending on the housing
"Despite the latest erosion in affordability, provincial levels
generally continue to stand near their long-term averages, suggesting
that owning a home remains affordable or, at worst, slightly
unaffordable across Canada - with Vancouver being a notable exception,"
RBC's housing affordability measure for a detached bungalow in Canada's
largest cities is as follows: Vancouver 72.1 per cent (up 3.4
percentage points from the last quarter), Toronto 47.5 per cent (up 0.8
of a percentage point), Montreal 43.1 per cent (up 2.0 percentage
points), Ottawa 39.0 per cent (up 0.4 of a percentage point), Calgary
35.9 per cent (up 0.9 of a percentage point) and Edmonton 31.5 per cent
(up 0.5 of a percentage point).
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. Alternative
housing types are also presented including a standard two-storey home
and a standard condominium. 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: Strong home price increases reduced affordability in the province in the
first quarter. The RBC measures for British Columbia rose between 0.8
of a percentage point and 1.8 percentage points, the most significant
increases of all the provinces. The lack of affordability will continue
to weigh on local demand and could potentially cause painful market
disruptions in the period ahead.
Vancouver affordability continued to wane, as measures climbed between
1.0 percentage point and 3.4 percentage points, and moved closer to
Alberta: Stable or slightly declining prices, contributed to substantial
improvements in affordability in Alberta last year. While market
conditions have become more balanced in recent months, there remains
very little pricing momentum in the province. The RBC measures for all
housing categories in Alberta stood below their long-term average in
the first quarter.
There are tentative signs that the Calgary market is finally firming up.
Area homebuyers are benefiting from attractive affordability, which
remained the best among Canada's major cities.
Saskatchewan: Following solid performance in the second half of last year, some
softening in property values in the early months of 2011 led to a
further decrease in the cost of owning a home in Saskatchewan. The RBC
measures for bungalows and two-storey homes fell by 0.7 of a percentage
point in the first quarter, representing a third consecutive quarterly
improvement in affordability. Condominium apartments bucked this trend
and saw their affordability modestly deteriorate in the face of higher
Manitoba: Housing affordability continues to be attractive in Manitoba, with
little change registered in the first quarter. Measures rose by 0.1 of
a percentage point for detached bungalows, declined by 0.2 of a
percentage point for condominium apartments and stayed even for
two-storey homes. Manitoba is still one of only two provincial markets
(alongside Alberta) where affordability measures stand below long-term
averages for all housing categories.
Ontario: In the first quarter of 2011, home resales in Ontario increased at a
sustained and yet subdued rate, while home prices rose modestly
overall. Affordability stood very close to long-term averages, leaving
homebuyer demand largely unchanged in the province.
RBC measures went up for bungalows and condominiums (by 0.5 and 0.1 of a
percentage point, respectively), but down for two-storey homes (by 0.6
of a percentage point). Market activity in Ontario is likely to face
some headwinds in coming months, given the latest changes in mortgage
lending rules and the expected rise in interest rates.
Somewhat tense market conditions in Toronto further fuelled appreciation
in property values and led to an erosion in affordability, as RBC
measures for detached bungalows and condominium apartments rose by 0.8
and 0.1 of a percentage point respectively.
Ottawa measures increased modestly for detached bungalows and two-storey
homes, while they remained the same for condominium apartments. As most
measures have moved above long-run averages, any further deterioration
in affordability will likely act to restrain demand in the area.
Quebec: Quebec homebuyers faced higher ownership costs in the first quarter,
which weighed significantly on affordability. RBC measures rose by 1.1
percentage points for detached bungalows and 1.3 percentage points for
two-storey homes, both representing the second largest increases behind
those recorded in British Columbia. All measures in Quebec stand
slightly above their long-term averages, corresponding to a moderate
strain in affordability in the province.
Montreal's affordability measures rose between 0.1 of a percentage point
and 2.8 percentage points in the first quarter of 2011, pushing levels
for all housing types above national and long-term averages for the
Atlantic Canada: In the first quarter, rebounding housing market activity has boosted
property values in Atlantic Canada. Home resales in the region climbed
solidly for the second consecutive period and further reversed some of
the declines that occurred last year. The downside has been a modest
fall in the region's affordability position. Affordability measures for
Atlantic Canada increased between 0.6 and 0.9 of a percentage point in
the latest period, although levels hovered near long-term averages and
remained among the lowest in the country.
The full RBC Housing Trends and Affordability report is available
online, as of 8 a.m. ET today at www.rbc.com/economics/market/pdf/house.pdf.
For further information:
Robert Hogue, RBC Economics Research, 416-974-6192
Elyse Lalonde, Media Relations, RBC, 416-974-8810