Canada's Housing Affordability Trending #Directionless: RBC Economics
TORONTO, Nov. 22, 2012 /CNW/ - Canada's housing market became more affordable
in the third quarter of 2012 as a result of modest declines in home prices and
further gains in household incomes, according to the latest Housing Trends and
Affordability Report issued by RBC Economics Research. The longstanding
affordability trend, however, is less clear.
"The broad affordability picture has been somewhat stationary over the last
two years, alternating between periods of improvement and deterioration,
resulting in an affordability trend that is, on net, essentially flat," said
Craig Wright senior vice-president and chief economist, RBC. "We saw this
directionless trend in the third quarter as housing affordability fully
reversed the mild erosion witnessed in the first half of the year."
RBC notes that Canada's housing market cooled further in the third quarter.
This was in part because of the effects of a fourth round of rule changes to
government-backed mortgage insurance, which effectively raised the bar for
first-time homebuyers. RBC expects the restrictive effects from these
modifications to ease by the end of the year and that resale activity will
stabilize in 2013.
Exceptionally low interest rates have been the key factor in keeping
affordability levels from reaching dangerous heights in Canada in recent
years. RBC indicates that as interest rates are currently at generational
lows, the scope for increases is substantial in the coming years.
"Assuming that the European crisis remains somewhat in check, and that the
U.S. fiscal challenges are addressed, we anticipate that the Bank of Canada
will begin gradually raising the overnight rate in the second half of next
year," added Wright. "This, along with the expected continued growth in
household income, will lessen the risk of marked erosion in affordability."
The RBC housing affordability measure captures the proportion of pre-tax
household income that would be needed to service the costs of owning a
specified category of home at going market values. During the third quarter of
2012, measures at the national level fell in all three categories of homes
tracked (a decline represents an improvement in affordability). RBC's measure
for the benchmark detached bungalow edged lower by 1.0 percentage point to
42.0 per cent, while the two-storey homes category fell by 1.2 percentage
points to 47.8 per cent; the measure for condominium apartments eased by 0.6
percentage points to 28.0 per cent.
In spite of this improvement, RBC measures continue to modestly exceed their
long-term averages, though national figures are somewhat inflated by extremely
poor affordability in the Vancouver-area market.
"The cost of owning a home took a smaller bite out of household pocketbooks in
the third quarter as home prices fell - most notably in the Vancouver area,
though it remains the least affordable market in Canada by a wide margin,"
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.
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.
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.
- Market losing some of its steam; minimal pressure on
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.
More balanced conditions help to ease affordability stress
Ontario's housing affordability eased somewhat in the third
quarter, but remains under mild pressure, most notably in the
two-storey home segment. RBC measures declined between 0.5
percentage points and 1.1 percentage points in the province,
which, in effect, rolled back the two consecutive quarterly
increases that took place in the first half of this year.
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.
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/.
Craig Wright, Senior Vice-President and Chief Economist, RBC, 416-974-7457
Robert Hogue, Senior Economist, RBC, 416-974-6192 Elyse Lalonde, Manager,
Corporate Communications, RBC Capital Markets, 416-842-5635
Image with caption: "RBC Economics - Where Housing Affordability Stands in
Canada Benchmark Detached Bungalow - Third Quarter 2012 (CNW Group/RBC)".
Image available at:
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-0- Nov/22/2012 12:00 GMT
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