Rising home prices, mortgage rates, utilities and taxes drive erosion
TORONTO, Sept. 12 /CNW/ - Homeownership costs continued to climb steadily
with Canada's housing affordability sharply eroding across all four housing
types in the second quarter, according to the latest Housing Affordability
report released today by RBC Economics.
"In the second quarter, Canada's housing affordability experienced one of
the largest and most broadly based quarterly deteriorations since the
mid-1990s," said Derek Holt, assistant chief economist, RBC. "Higher house
prices, mortgage rates, utilities and property taxes all combined to drive the
The RBC Affordability report measures the proportion of pre-tax household
income needed to service the costs of owning a home. All four housing classes
eroded - the standard condo remained the most affordable during the quarter,
requiring about 29 per cent of income. A standard townhouse was next at 33 per
cent, followed by a detached bungalow at 41 per cent. A standard two-storey
home remained the least affordable housing type at 46 per cent.
According to RBC, the effects were extensive as affordability eroded in
every single housing class, in every province and in every major city across
Canada. RBC notes that Saskatchewan, Alberta and British Columbia witnessed
the most significant erosion in housing affordability. Affordability
deteriorated by approximately 20 per cent across each of the home segments in
Saskatchewan, marking the worst quarterly deterioration on record. Over the
past couple of years, Saskatoon, Edmonton and Calgary have suffered the
largest deteriorations of all Canadian cities. Housing market conditions from
Manitoba eastward are relatively stable compared to the western provinces.
Holt noted that the arrival of extended amortization mortgages has
changed the dynamics of the housing market. The new found ability to extend
amortization up to forty-year mortgages temporarily offsets affordability
pressures by rolling the clock back to late 2005 and early 2006 affordability
RBC's Affordability measure for a detached bungalow in Canada's largest
cities is as follows: Vancouver 71 per cent, Toronto 45 per cent, Calgary
45 per cent, Montreal 36 per cent and Ottawa 31 per cent.
Also included in the report are 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 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 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: Housing affordability eroded further across the
province as rising mortgage rates and house prices squeezed out
prospective home-buyers. The relief seen in the two-storey home
segment earlier this year was reversed this quarter with all four
home segments witnessing deteriorations in affordability.
- Alberta: Housing affordability deteriorated significantly in the
second quarter of 2007. Alberta's house prices have been growing at a
pace well above incomes and in a short time have created stressed
- Saskatchewan: The Saskatchewan housing market suffered its worst ever
quarterly deterioration of affordability on record. At the start of
the year, the influx of people caught the housing supply off guard,
forcing affordability to deteriorate. This momentum continued into
the second quarter as the pace of annual price gains soared into the
double digit range.
- Manitoba: With house price gains picking up pace and mortgage rates
continuing to rise, the province's housing affordability has
deteriorated for a second straight quarter. Manitoba saw the greatest
quarterly decline in affordability in more than a year.
- Ontario: After modest improvements earlier in the year, Ontario's
housing affordability deteriorated sharply in the second quarter. A
combination of higher house prices, rising mortgage rates and
increasing utility costs have forced a substantial deterioration in
affordability across all housing classes.
- Quebec: Despite only modest increases in house prices this past
quarter, climbing mortgage rates, utilities and taxes drove an
erosion in Quebec's housing affordability. However, the province's
decent economic fundamentals still support housing markets, with job
growth at a healthy two per cent rate this year and incomes keeping
pace with gains in house prices.
- Atlantic region: An environment of rising mortgage rates and strong
price gains created pricier second quarter housing conditions in
Atlantic Canada. While each of the housing segments witnessed a
significant affordability deterioration, it was the two-storey and
condo segments that saw the sharpest erosion.
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