Balanced Housing Market Conditions Ease Ontario's Mild Affordability Stress: RBC Economics

Balanced Housing Market Conditions Ease Ontario's Mild Affordability Stress: 
RBC Economics 


    --  Cooling intensifies in Toronto market; housing slightly more
        affordable in the third quarter of 2012
    --  Ottawa affordability improves amid largest quarterly decline in
        housing activity since mid-2010

TORONTO, Nov. 22, 2012 /CNW/ - Ontario's housing market continues to be under 
some mild affordability-related stress, which slightly eased off in the third 
quarter, according to the latest Housing Trends and Affordability Report 
released today by RBC Economics Research.

"Ontario's hot housing market cooled off in the spring and summer, as the 
number of home resales fell while homes for sale grew - causing a notable 
moderation in the rate of price appreciation in the third quarter," said Craig 
Wright, senior vice-president and chief economist, RBC. "We're currently 
seeing more balanced market conditions and this provides scope for further 
easing in affordability-related stress in the province near-term."

RBC's housing affordability measures, which capture the province's proportion 
of pre-tax household income needed to service the costs of owning a home at 
market values, declined across all housing types (a decrease in the measure 
represents an improvement in affordability). The RBC measure for the benchmark 
detached bungalow fell by 0.6 percentage points to 42.6 per cent, the standard 
two-storey home eased by 1.1 percentage points to 48.5 percent and the measure 
for condominium apartments declined by 0.5 percentage points to 29.2 per cent.

"The declines we saw across measures essentially rolled back the two 
consecutive quarterly increases that took place in the first half of this 
year," added Wright.

Toronto market cools further; affordability strain eases slightly

Home resales in the Toronto-area tumbled nearly 12 per cent 
quarter-over-quarter, signalling a further cooling in the market. RBC notes 
that an increased supply of homes available for sale relative to demand 
significantly weakened the strong hand sellers had earlier this year, leading 
to modest quarterly price declines in some housing categories.

"The slowing pace of price increases made things a bit easier for prospective 
homebuyers in Toronto - the share of household budget needed to cover the 
costs of owning a home at market prices fell for the first time this year," 
Wright noted.

Affordability exerted some greater than usual stress on the Toronto market, 
despite RBC's measures declining between 0.7 percentage points and 1.3 
percentage points in the third quarter, as the measures still stood modestly 
above their long-term averages.

Ottawa housing market slows

After holding steady in the second quarter, housing affordability slightly 
improved in the third quarter in the Ottawa-area market, with RBC measures 
edging lower across all housing categories between 0.1 and 0.5 percentage 
points.

"The cost of owning a home at market prices is taking a bigger bite out of 
household budgets in Ottawa than has been the case, on average, since the 
mid-1980s, indicating that local homebuyers experienced greater affordability 
strain in the third quarter. This may have been among factors weighing on 
housing activity in recent months," explained Wright. "Home resales fell 5.4 
per cent in the third quarter, constituting the largest quarterly decline in 
the area since mid-2010."

Where housing affordability stands in Canada

RBC's housing affordability measure for the benchmark detached bungalow in 
Canada's largest cities is as follows: Vancouver 83.2 per cent (down 5.8 
percentage points from the previous quarter); Toronto 52.4 per cent (down 0.7 
percentage points); Montreal 40.2 per cent (up 0.1 percentage points); Ottawa 
38.7 per cent (down 0.4 percentage points); Calgary 38.3 per cent (down 0.7 
percentage points) and Edmonton 31.1 per cent (down 0.6 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) at market value. Alternative 
housing types are also presented, including a standard two-storey home and a 
standard condominium apartment. The higher the reading, the more difficult it 
is to afford a home at market values. For example, an affordability reading of 
50 per cent means that homeownership costs, including mortgage payments, 
utilities and property taxes, would take up 50 per cent of a typical 
household's monthly pre-tax income.

Highlights from across Canada:
    --  British Columbia:
        Affordability hurdles still tough to clear
        British Columbia's housing market experienced improvements in
        the third quarter of 2012, and yet, affordability conditions
        remained the poorest across Canada. RBC measures fell between
        2.0 percentage points and 3.7 percentage points, the largest
        drops across Canada. The situation remains less severe
        elsewhere in the province; the share of income needed to carry
        ownership costs in Victoria, for instance, is almost half the
        share in Vancouver for some housing types.
    --  Alberta:
        Attractive affordability contributes to market renaissance
        Alberta's housing market enjoyed firm and steady resale
        activity, balanced demand-supply conditions, moderate home
        price increases, and improved housing affordability. Third
        quarter affordability measures for the province edged lower -
        between 0.2 percentage points and 0.4 percentage points
        -remaining below their long-term and the national averages.
    --  Saskatchewan:
        Little evidence of affordability strain
        Significant deteriorations in housing affordability in the
        second quarter in Saskatchewan were largely reversed in the
        third with RBC measures in the province falling between 0.9
        percentage points and 1.3 percentage points. The measures stood
        just slightly above their long term averages for all housing
        categories, indicating little in the way of undue affordability
        induced strain on the market.
    --  Manitoba
        - Market losing some of its steam; minimal pressure on
        affordability
        Declining housing prices spurred a notable improvement in
        housing affordability in Manitoba over the third quarter. RBC
        measures fell between 0.6 percentage points and 1.6 percentage
        points, which fully unwound the deterioration that occurred in
        the prior quarter. Provincial affordability levels sit slightly
        higher than their averages since the mid 1980s, but remain well
        below the corresponding national averages.
    --  Quebec:
        Second straight affordability improvement
        Housing affordability improved for the second straight quarter
        in Quebec, with RBC's measures edging lower across all housing
        types in the province, between 0.6 percentage points and 0.8
        percentage points, in the third quarter. For the most part,
        levels are only slightly worse than the average historical
        level, indicating that prospective homebuyers in Quebec may
        feel minimally stretched budget-wise, if they bought a home at
        current market prices.
    --  Atlantic:
        Affordability position remaining quite stable
        Housing affordability in Atlantic Canada improved slightly
        across the board, with RBC measures in the region inching lower
        by 0.2 percentage points to 0.7 percentage points relative to
        the previous quarter. Affordability measures have been
        reasonably stable over the past three years in the region,
        showing no discernable trends on either the up or down sides.

The full RBC Housing Trends and Affordability report is available online, as 
of 7 a.m. ET today, at rbc.com/economics/market/.

Please contact: Robert Hogue, Senior Economist, RBC Economics Research, 
416-974-6192 Elyse Lalonde, Manager, Corporate Communications, RBC Capital 
Markets, 416-842-5635

SOURCE: RBC

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CO: RBC
ST: Ontario
NI: FIN ECOSURV 

-0- Nov/22/2012 12:00 GMT


 
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