Ontario home buyers benefit from a small improvement in affordability: RBC Economics

Ontario home buyers benefit from a small improvement in affordability: RBC 
Economics 
Activity in the Toronto and Ottawa markets cooled in the fourth quarter of 2012 
TORONTO, Feb. 25, 2013 /CNW/ - Ontario's previously hot housing market 
conditions continued to cool in the fourth quarter of 2012, according to the 
latest Housing Trends and Affordability Report issued today by RBC Economics 
Research. This transition contributed to some improvement in housing 
affordability in the province. 
"The tightness that characterized Ontario's housing market earlier in the year 
gave way to more balanced conditions at the tail end of 2012," said Craig 
Wright, senior vice-president and chief economist, RBC. "This market 
transition set the stage for more affordable housing prices across the 
province during the second half of 2012." 
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 inched lower by 0.3 percentage points to 29 per cent for 
condominium apartments and by 0.1 percentage points to 42.9 for detached 
bungalows. The measure for two-storey homes, however, edged higher by 0.1 
percentage points to 48.9 per cent, following a substantial decline in the 
third quarter. 
Toronto-area housing market cooler and slightly more affordable 
"Brisk demand in Toronto's housing market early last year put sellers firmly 
in charge, driving prices upward, though this strength waned as the year 
progressed. Demand cooled significantly during the spring, summer and early 
fall," added Wright. "This quick turn of events re-balanced market conditions 
and gave buyers more leverage to steer prices in their favour during the 
latter half of 2012." 
RBC notes that the prolonged boom that Toronto experienced in the 2000s 
exerted some greater than usual stress on the market, which contributed to the 
recent cooling in activity. 
Still, pressure eased in the latter half of last year thanks to a slight 
improvement in overall affordability. Fourth quarter affordability measures 
fell by 0.4 percentage points for both detached homes and condominium 
apartments to 52.8 per cent and 33.1 per cent, respectively. RBC's measure for 
two-storey homes inched higher by 0.3 percentage points to 62.2 per cent. 
Ottawa-area affordability holds steady; market conditions erode 
Housing market conditions in the Ottawa-area gradually eroded over the course 
of 2012. The combination of weaker demand and stronger supply of homes for 
sale fully slackened the tight market conditions that previously existed. 
"Affordability levels in Ottawa were in a holding pattern for the bulk of 
2012. Buyers had more power as market conditions loosened in the late stages 
of the year, which led to some reduction in ownership costs," added Wright. 
RBC's measures for Ottawa fell in the fourth quarter for both detached 
bungalows (by 0.5 percentage points) and two-storey homes (by 0.4 percentage 
points); the measure for condominium apartments was unchanged. The report 
notes that these affordability levels still stand above their historical 
averages, suggesting that local homebuyers may be facing some greater than 
usual affordability-related strain. 
RBC's housing affordability measure for the benchmark detached bungalow in 
Canada's largest cities is as follows: Vancouver 82.2 per cent (down 2.6 
percentage points from the previous quarter); Toronto 52.8 per cent (down 0.4 
percentage points); Montreal 39.3 per cent (down 0.9 percentage points); 
Ottawa 38.8 per cent (down 0.5 percentage points); Calgary 38.1 per cent (up 
0.2 percentage points) and Edmonton 30.7 per cent (down 0.1 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:
        housing affordability improving, still has to go the distance
        While housing affordability in British Columbia still has a
        long way to go before reaching less stressful levels,
        homebuyers in the province received a welcome reprieve in the
        fourth quarter. RBC measures fell by 1.1 percentage points for
        condominium apartments and 1.0 percentage point for detached
        bungalows. The two-storey home category experienced a small
        increase (0.4 percentage points), though this followed a
        substantial decline in the third quarter.
    --  Alberta:
        vibrant market bolstered by attractive affordability
        Brisk demand for the province's housing in 2012 was supported
        by a strong provincial economy, accelerating population growth
        and attractive affordability. Further improvement was
        registered in the fourth quarter with measures falling between
        0.1 and 0.2 percentage points.
    --  Saskatchewan:
        affordability conditions buck the national trend Tight market
        conditions at the beginning of 2012 had a lasting impact on
        home prices in Saskatchewan, which climbed at some of the
        faster paces in Canada in the fourth quarter. Rising property
        values caused affordability to deteriorate in the fourth
        quarter with measures increasing between 0.5 and 1.1 percentage
        points.
    --  Manitoba:
        market vigour unhindered by slight affordability deterioration
        Manitoba's housing market registered a banner year in 2012 with
        a record 14,000 existing homes sold, indicating that housing
        affordability levels had little dissuasive effect on homebuyers
        in 2012. Although measures for detached bungalows and
        condominiums deteriorated in the fourth quarter, measures for
        two-storey homes remained unchanged. RBC's measures for
        Manitoba continued to rank slightly above their long-term
        average, suggesting that any affordability strain is likely
        minimal at this point.
    --  Quebec:
        generally improving affordability tone is sustained
        Quebec's housing affordability improved, for the most part, for
        the third quarter in a row in the fourth quarter, yet this did
        little to stimulate homebuyer demand as resale activity
        continued to cool in the province. RBC measures fell for
        two-storey homes (by 1.1 percentage points) and detached
        bungalows (by 0.3 percentage points), but rose for condominium
        apartments (by 0.4 percentage points).
    --  Atlantic Canada:
        housing continues to be affordable
        Affordability in the Atlantic region received another boost in
        the fourth quarter, with RBC measures falling for two-storey
        homes (by 1.0 percentage points) and detached bungalows (by 0.5
        percentage points), keeping levels well below their respective
        national averages. The measure for condominium apartments rose
        modestly by 0.3 percentage points, though this followed a more
        sizable drop in the previous period.

The full RBC Housing Trends and Affordability report is available online, as 
of 8 a.m. ET today, at rbc.com/economics/market/.

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

SOURCE: RBC

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CO: RBC
ST: Ontario
NI: FIN ECO 

-0- Feb/25/2013 10:00 GMT