TORONTO, April 16 /CNW/ - The downward force on Alberta's housing markets
has intensified alongside the declining provincial economy since the fall
though it has contributed to further restore affordability in the final
quarter of 2008, according to the latest housing report released today by RBC
"Alberta's affordability conditions have been improving since mid-2007
and continued to do so in the fourth quarter of 2008, as affordability
measures improved 2.3 to 3.6 percentage points," said Robert Hogue, senior
economist, RBC. "Poor economic conditions have taken over as the key market
driver, surpassing poor affordability which had been largely behind the
initial stages of the downturn."
The RBC Affordability measure for Alberta, which captures the proportion
of pretax household income needed to service the costs of owning a home,
improved across all home segments. Affordability of detached bungalows in the
province dropped to 39.3 per cent, the standard townhouse to 29.8 per cent,
the standard condo to 25.9 per cent, and the standard two-storey home to 44
With confidence shaken, consumers are in full retreat. The report noted
that home resale activity dropped to a 12-year low at the end of 2008,
rebounding modestly in early 2009. In sharp contrast to the very tight
conditions that have prevailed for years, there are now plenty of properties
available on the market, causing sellers to further ratchet down prices.
Despite this shift, affordability in the province has yet to return to
historical averages and will remain an issue in the short-term.
The sudden and precipitous drop in oil and gas prices and ensuing
economic slump have thrown more cold water on Alberta's top two housing
markets - Calgary and Edmonton. With the cancellation of major capital
projects in the energy sector and rising unemployment upsetting consumer
sentiment, housing market activity in both cities contracted sharply in the
second half of 2008. Sales of existing homes tumbled after the summer which
caused price declines to accelerate. Prices in Calgary dropped between 12 and
14 per cent from their peak and in Edmonton, between eight and 20 per cent.
"With low sales-to-new listings ratios giving the upper hand to buyers,
further price erosion is likely to take place in 2009. However, on a brighter
note, the market correction is helping to restore some degree of affordability
in both cities," noted Hogue.
RBC's Affordability measure for a detached bungalow for Canada's largest
cities is as follows: Vancouver 70.3 per cent, Toronto 51.3 per cent, Calgary
42.7 per cent, Ottawa 42.7 per cent and Montreal 39.4 per cent.
The report also looked at mortgage carrying costs relative to incomes for
a broader sampling of cities across the country. For these smaller 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
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: Housing markets remain under heavy downward
pressure, and prices and sales continue to slide. In the past year,
there has been a notable improvement in affordability, though the
recovery process has far to go.
- Saskatchewan: Market activity has cooled considerably from the
frenzied pace from 2006 to early 2008 and prices have begun to
decline. Nonetheless, economic and demographic fundamentals are still
largely supportive of the housing market and overshadow extremely
poor affordability levels.
- Manitoba: Manitoba's housing markets have fared much better than the
vast majority in Canada: resale activity has slowed moderately and
prices have either held their own or edged down just slightly.
Affordability has been kept out of the danger zone, helping to
minimize any downside risks.
- Ontario: With the recession pounding many communities, housing market
conditions have deteriorated considerably. However, the impact is
unlikely to develop into an all-out rout similar to that of the early
1990s. Affordability, while still causing some stress, is quickly
being restored to levels closer to long-term averages.
- Quebec: The province's housing markets have been among the last in
Canada to yield to the weakening trend. The main sign of cooling thus
far has been a drop in resale activity, as prices have held up
reasonably well. Some of the persisting market strength can be
ascribed to sensible affordability levels, which had eroded only
modestly in recent years.
- Atlantic region: Markets have largely remained stable against the
general housing downturn, with St. John's becoming the housing hot
spot in Canada and Halifax and Saint John maintaining steady upward
price momentum. The region is benefiting from improving affordability
following two years of deterioration.
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: Robert Hogue, RBC Economics Research, (416)
974-6192; Jackie Braden, RBC Media Relations, (416) 974-2124