Canadian homes slightly less affordable in the second quarter of 2013: RBC Economics

Canadian homes slightly less affordable in the second quarter of 2013: RBC 
TORONTO, Aug. 27, 2013 /CNW/ - Owning a home in Canada became slightly less 
affordable in the second quarter of 2013, according to the latest Housing 
Trends and Affordability Report issued today by RBC Economics Research. 
Erosion in affordability didn't hinder activity, however; home resales and 
housing starts have shown renewed vigour since the spring across the country, 
reversing part of the cooling that took place in the second half of 2012 and 
early 2013. 
"Homebuyers seemed unfazed by the slight deterioration in affordability - we 
saw the market regain some momentum in the second quarter with home resales 
increasing 6.4 per cent," said Craig Wright, senior vice-president and chief 
economist, RBC. "Resales should stabilize close to the recent not-too-hot, 
not-too-cold levels in the near-term, barring any further changes in housing 
policy by the federal government." 
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 (a rise in the measure 
represents deterioration in affordability). 
During the second quarter of 2013, affordability measures at the national 
level rose for two of the three categories of homes tracked. RBC's measure for 
the detached bungalow rose 0.3 percentage points and for the standard 
two-storey home rose 0.4 percentage points to 42.7 per cent and 48.4 per cent, 
respectively. The measure for the standard condominium was unchanged at 27.9 
per cent. 
The RBC report notes that, in past years, demand-supply conditions were 
relatively tighter for single-family homes compared to condos. These 
conditions have consistently applied relatively greater upward pressure on 
single-family homes' homeownership costs. The cumulative effect of these 
varying pressures has been driving affordability levels below their historical 
averages for bungalows, and especially, two-storey homes, while staying 
roughly on par for condominium apartments. 
"The two-tiered affordability picture we are seeing nationally primarily 
reflects the conditions in Canada's three largest markets: Toronto, Montreal 
and Vancouver. It has become a bit of a stretch for a typical household to own 
a bungalow or two-storey dwelling in these cities," said Wright. "It's 
important to note that we are not seeing many signs indicating that owning a 
home - of any type - is out of reach for households in other local markets." 
What is keeping affordability levels generally manageable for Canada's 
homebuyers? RBC says it's the current exceptionally low interest rates. RBC 
anticipates that the Bank of Canada will keep its overnight rate unchanged at 
1.0 per cent through the remainder of 2013 and will gradually begin raising it 
starting in mid-2014, which should largely mitigate risks of serious 
deterioration in affordability levels. 
In most of Canada's local markets there was some slippage of affordability in 
the second quarter of 2013. The most noticeable deterioration was in Vancouver 
where, after four quarters of mostly continuous improvement, the bungalow and 
two-storey home segments recorded a significant slide. Erosion in other 
markets was generally minor, with perhaps the exception of Edmonton's detached 
bungalow segment. 
RBC's housing affordability measure for the benchmark detached bungalow in 
Canada's largest cities is as follows: Vancouver 82.1 per cent (up 2.2 
percentage points from the previous quarter); Toronto 54.5 per cent (up 0.5 
percentage points); Montreal 38.1 (down 0.7 percentage points); Ottawa 37.1 
(up 0.5 percentage points); Edmonton 34.0 (up 1.8 percentage points); Calgary 
33.0 (unchanged). 
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 takes one step back

Homeownership of single-family homes in the province became less affordable in 
the second quarter of 2013 amid a surge in resale activity since early spring 
following a near two-year long cooling stretch. RBC measures rose by 1.1 
percentage points for bungalows, by 0.8 percentage points for two-storey 
homes, and by only 0.1 percentage points for condominiums.
    --  Alberta:
        homeownership remains relatively affordable

Owning a home in Alberta continued to be relatively affordable for provincial 
homebuyers despite some increases in ownership costs in the past two quarters. 
RBC's affordability measures for the province rose between 0.1 and 0.7 
percentage points across all housing types in the second quarter; yet, levels 
still stood below their long-term averages.
    --  Saskatchewan:
        seesaw affordability pattern endures

Affordability in the province continued to experience a seesaw-like pattern 
which has characterized this market in recent years. RBC measures rose 
modestly by 0.9 percentage points for bungalow and 0.5 percentage points for 
two-storey homes in the latest period, while the measure for condominiums 
inched lower by 0.3 percentage points.
    --  Manitoba:
        housing affordability a mixed bag

The province's second quarter housing affordability developments proved to be 
a mixed bag with RBC's measure for the two-storey home category rising by 1.8 
percentage points, the measure for bungalows down slightly by 0.2 percentage 
points, and the measure for condominiums edging up by 0.2 percentage points.
    --  Ontario:
        steady as she goes

There was little change in housing affordability in Ontario in the second 
quarter. RBC's measures for both bungalows and two-storey homes rose by 0.2 
percentage points relative to the first quarter, while the measure for 
condominiums remained flat.
    --  Quebec:
        bucking the deteriorating affordability trend

The Quebec housing market bucked the national trend by enjoying a broad-based 
improvement in affordability in the second quarter. RBC affordability measure 
for the province fell by 0.5 percentage points for bungalows and 0.4 
percentage points for condominiums; the measure for two-storey homes remained 
    --  Atlantic Canada:
        affordability stuck in neutral

Atlantic Canada's housing affordability levels remained relatively static at 
neutral levels in the second quarter of 2013. Affordability measures moved 
marginally in all categories tracked by RBC: bungalows and condominiums edged 
lower by 0.1 percentage points and 0.2 percentage points, respectively; 
two-storey homes edged up by 0.1 percentage points.

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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