Canada's housing affordability slightly improves for the second consecutive quarter: RBC Economics

Canada's housing affordability slightly improves for the second consecutive 
quarter: RBC Economics 

    --  Low interest rates keep affordability-related stress in
        Canada's housing market to a minimum
    --  Affordability improved modestly in most major city markets in
        the final quarter of 2012

TORONTO, Feb. 25, 2013 /CNW/ - Canada's homeownership costs fell slightly in 
the second consecutive quarter in the last quarter of 2012, according to the 
latest Housing Trends and Affordability Report issued by RBC Economics 
Research. The RBC report notes that small declines in mortgage rates and in 
home prices across several markets resulted in an overall improvement in 

"Exceptionally low interest rates have been the key factor keeping home 
affordability from reaching dangerous levels in recent years," said Craig 
Wright, senior vice-president and chief economist, RBC. "Residential property 
values are elevated in Canada and, for many households, ownership remains 
accessible only because of rock-bottom mortgage rates. It could be a different 
story if interest rates were to move swiftly and significantly higher."

RBC anticipates that the Bank of Canada will leave its overnight rate 
unchanged at one per cent through 2013 and gradually begin to increase it in 
early 2014. At the same time, the Canadian economy is expected to be on 
stronger footing, providing some offset to negative effects that might 
materialize in the housing market from a slow and steady rise in interest 
rates, says RBC.

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 fourth 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 measures for both detached bungalows and condominium apartments eased by 
0.2 percentage points to 42.1 per cent and 28.0 per cent, respectively; the 
measure for the two-storey home fell by 0.3 percentage points to 47.8 per 
cent. Measures still modestly exceeded their historical averages, though 
national figures are somewhat exaggerated by extremely poor affordability 
conditions in the Vancouver-area market.

Despite balanced demand and supply conditions in the majority of local markets 
in Canada, softer homebuyer demand since the middle of 2012 has weighed on 
home prices, with modest month-to-month declines becoming common occurrences 
since the summer.

"We expect overall housing market activity to remain subdued this year," added 
Wright. "That said, we believe that there is scope for some mild strengthening 
from recent activity levels, as the negative effects of the mortgage insurance 
rule changes, implemented in July 2012 gradually dissipate."

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.
    --  Ontario:
        affordability largely improves, tempering overall market
        The tightness that characterized Ontario's housing market in
        the early part of 2012 gave way and a more balanced market was
        observed in the second half of 2012, improving overall
        affordability conditions in the province. RBC's measures inched
        lower by 0.1 and 0.3 percentage points for the detached
        bungalow and condominium apartment, respectively, while the
        measure for two-storey homes rose marginally by 0.1 percentage
    --  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

Craig Wright, Senior Vice-President and Chief Economist, RBC, 416 974-7457 
Robert Hogue, Senior Economist, RBC, 416 974-6192 Elyse Lalonde, Manager, 
Communications, RBC Capital Markets, 416 842-5635


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

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