TORONTO, Feb. 24 /CNW/ - Shrugging off concerns last year that the
housing market would falter, Ontario's resale activity accelerated and
property values resumed appreciation in the fourth quarter of 2010,
according to the latest Housing Trends and Affordability Report issued
today by RBC Economics.
"Ontario's slowdown in activity last spring and summer largely reflected
transitory factors, including the introduction of the HST and changes
in mortgage lending rules which nudged demand forward to the start of
the year," said Robert Hogue, senior economist, RBC. "The silver lining
of this slowdown is a slight improvement in affordability, which at
this point plays a neutral role in housing demand as affordability
levels sit close to their long-run average."
The RBC Housing Affordability Measures for Ontario, which capture the
province's proportion of pre-tax household income needed to service the
costs of owning a home, edged lower for the second consecutive quarter
for most housing categories in the fourth quarter with the exception of
two-storey homes, which became marginally less affordable amid notable
The measure for the benchmark detached bungalow declined to 38.7 per
cent (down 0.3 percentage points from the previous quarter) and the
standard condominium to 27.3 per cent (down 0.2 percentage points),
while the standard two-storey home rose to 45.1 per cent (up 0.1
The RBC report notes that the Toronto-area market sustained a rebound in
activity in the latter part of 2010, following a steep fall in the
spring and early summer from earlier unsustainably high levels.
"Toronto's market has climbed its way back toward more sustainable
activity. These improvements confirm our view that earlier weakness had
more to do with transitory factors than permanent evaporation of
demand," said Hogue.
Owing primarily to lower mortgage rates, Toronto-area homebuyers enjoyed
improved affordability in most housing categories with measures
generally standing close to long-term averages in the fourth quarter.
RBC Measures eased for both condominium apartments and detached
bungalows (down 0.6 and 0.5 percentage points respectively). On the
other hand, two-storey homes rose by a modest 0.3 percentage points.
Ottawa's housing market saw fairly sizeable price increases which pushed
homeownership costs up; however, savings generated by lower mortgage
rates provided some offset.
"Contrary to the general trend among Canada's large cities, Ottawa did
not experience an improvement in affordability," noted Hogue.
"Nevertheless, waning affordability did little to dampen enthusiasm of
homebuyers with home resales trending to strong levels experienced
prior to the wild swings in 2009 and early 2010."
Ottawa's affordability has deteriorated to levels likely to pinch demand
going forward. RBC Measures for Ottawa are above their long-run
averages for all housing types in the area. The measure for detached
bungalows and condominium apartments both rose by 0.5 percentage
points, while the measure remained unchanged for two-storey homes.
Elsewhere in the country, a majority of provinces saw improvements in
affordability in the fourth quarter. Only the standard two-storey
benchmark became less affordable in Ontario and Quebec, as did the
standard condominium apartment in Quebec and the Atlantic region.
RBC's Housing Affordability Measure for a detached bungalow in Canada's
largest cities is as follows: Vancouver 68.7 per cent (down 0.4
percentage points from the last quarter), Toronto 46.8 per cent (down
0.5 percentage points), Montreal 41.3 per cent (down 0.4 percentage
points), Ottawa 38.7 per cent (up 0.5 percentage points), Calgary 34.9
per cent (down 3.1 percentage points) and Edmonton 31.0 per cent (down
2.4 percentage points).
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: Buying a home in B.C. became slightly more affordable in the fourth
quarter of 2010, due primarily to a small drop in mortgage rates. After
experiencing some declines in the previous quarter, home prices rose
modestly for most housing categories; condominium apartments bucked the
trend, however, and depreciated slightly. Prices were supported by a
tightening in market conditions with home resales picking up smartly
following substantial cooling in the spring and summer that saw sellers
lose their edge in setting property values. Demand and supply in the
province are judged to be quite balanced at this point. RBC's
Affordability Measures fell between 0.8 and 1.0 percentage points in
the fourth quarter which came on the heels of much more substantial
drops (1.7 to 4.8 percentage points) in the third quarter.
Notwithstanding these declines, affordability remains poor and will
weigh on housing demand going forward.
Alberta: Alberta officially became the most affordable provincial market in the
country in the fourth quarter, according to the RBC Measures which fell
once again by 1.0 to 2.4 percentage points, extending their declines
since late-2007. In addition to the lower mortgage rates, the further
depreciation of home prices contributed to lowering homeownership
costs. Property values were negatively affected by a substantial
downswing in demand in the spring and early summer, which put buyers in
the drivers' seat. The significant improvement in affordability is near
the end of its line, however, as demand has shown more vigour in recent
months - alongside a provincial economy that is gaining more traction -
and the market has become better balanced. RBC expects that this will
stem price declines this year, thereby removing a potential offset to
the negative effect of projected rise in interest rates on
Saskatchewan: The provincial housing market finished 2010 on an enviable note as
affordability improved even though home prices, for the most part, rose
slightly in the fourth quarter. Generally, the price increases more
than reversed declines in the previous period but were too small to
negate the beneficial effect of lower mortgage rates. The home resale
market gained back solid forward momentum in the second half of 2010,
notwithstanding some softening in the final months, which
re-established a stronger balance between demand and supply. The RBC
Measures fell between 0.6 and 1.1 percentage points in the quarter,
although the levels continue to be modestly above historical averages
in the province. RBC projects the Saskatchewan market will take its
current affordability position in stride as a rebound in provincial
economic growth and continued strong migration inflows will support
housing demand this year.
Manitoba: Manitoba's market enjoyed the best of both worlds in the fourth quarter
of 2010 as home price were higher but ownership costs were lower.
Thanks to lower mortgage rates in the quarter and continued growth in
household income, the negative effect of small gains in property values
on affordability was more than offset. The RBC Measures eased between
0.1 and 0.6 percentage points in the fourth quarter, keeping Manitoba
among the only two provincial markets in Canada (with Alberta) in which
Affordability Measures stand below long-term averages for all housing
categories. Sales of existing homes ramped up considerably in the fall,
reaching near historical peaks by December. Housing demand is being
boosted by the strongest net international immigration in the province
since the mid 1950s and by improved job prospects - Manitoba boasts the
lowest unemployment rate in Canada (as of the fourth quarter of 2010)
and RBC expects this to continue in 2011.
Quebec: Higher home prices in the fourth quarter of 2010 caused some
deterioration in affordability following meaningful improvement in the
previous period. Home resales strengthened in the latter part of 2010,
contributing to tightened market conditions that gave sellers a
stronger hand in negotiating prices, particularly for two-storey homes.
Price gains and rising household income dominated the positive effects
of lower mortgage rates on affordability in the fourth quarter for all
housing types except detached bungalows (where a small improvement was
registered). RBC Measures rose marginally by 0.1 to 0.2 percentage
points for two-storey homes and condominium apartments, and fell by 0.6
percentage points for detached bungalows; however, the levels of all
Measures still modestly exceeded long-term averages in the province.
RBC expects that modestly strained affordability in Quebec will further
deteriorate in the period ahead when interest rates rise.
Atlantic Canada: Home resale activity sputtered late in 2010 and reversed some of the
gains achieved at the end of the summer and early fall. This has not
disrupted property values in the fourth quarter as home prices
generally appreciated; yet, housing affordability improved for most
housing categories because declines in interest rates provided a
dominant offset. Only condominium apartments saw a slim deterioration
in affordability as the RBC Measures rose by 0.1 percentage point
compared with declines of 0.5 percentage points for detached bungalows
and two-storey homes. Affordability levels continue to be mostly
attractive in Atlantic Canada from both historical and cross-country
perspectives. RBC projects that is likely to remain so in the near-term
despite our expectation of higher interest rates. Market conditions
have recently swung in favour of buyers which will exert downward
pressure on prices in coming months.
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