Ontario saw some reprieve from deteriorating housing affordability trend in Q2: RBC Economics

Ontario saw some reprieve from deteriorating housing affordability trend in 
Q2: RBC Economics 
TORONTO, Aug. 28, 2014 /CNW/ - Ontario's housing affordability improved 
slightly in the second quarter of 2014, but not enough to reverse mild and 
ongoing deteriorating affordability trends, according to the latest Housing 
Trends and Affordability Report issued today by RBC Economics Research. 
Ownership costs have come under mounting pressure in recent years, 
particularly in markets such as Toronto where property values are on the 
incline. The latest readings of RBC's measures continue to suggest that 
affordability may be moderately strained in the province, particularly in 
"Ontario's homebuyers don't appear to be overly concerned by affordability 
issues at present mainly because of lower mortgage rates - home resales picked 
up in the second quarter by 13 per cent relative to the first quarter," said 
Craig Wright, senior vice-president and chief economist, RBC. "This 
corroborates the argument that the deterioration in the first quarter was 
driven more by poor winter weather than any underlying weakness." 
The RBC 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, edged lower for all housing types in the second quarter 
(a decrease in the measure represents an improvement in affordability). 
RBC's affordability measures eased by 0.2 percentage points to 44.7 per cent 
for bungalows, and by 0.1 percentage points for both two-storey homes and 
condominiums to 50.9 per cent and 29.3 per cent, respectively. 
Toronto: a seller's market despite rise in listings 
A 10.2 per cent increase in homes newly listed for sale between Q1 and Q2 was 
a welcome development in the Toronto market because demand had previously been 
stronger than supply. RBC says the surge in new listings helped resales reach 
their second-highest second quarter level on record, although it didn't 
achieve much greater balance between supply and demand in the market. 
"Conditions in Toronto's housing market continue to favour sellers, and 
accordingly, sustain a strong bid on property values," added Wright. 
"Developments in the latest quarter did virtually nothing to stem the steady 
erosion in housing affordability we've seen in the market since 2009." 
RBC notes that Toronto was the only major market across Canada showing some 
deterioration in the second quarter indicating that affordability still 
appears to be strained, particularly for single-family home segments. 
RBC's measure for condominiums edged higher by 0.1 percentage points to 34.3 
per cent. The other measures stayed unchanged at 65.3 per cent for two-storey 
homes and eased by 0.2 percentage points to 55.9 per cent for bungalows. 
Demand in Ottawa begins to pick up 
Following two consecutive quarters of declining sales, the Ottawa-area market 
showed signs that demand was finally picking up, though overall market 
conditions remain quite weak in the area, says RBC. 
"In the second quarter, the Ottawa area still saw plenty of properties 
available for sale relative to demand," said Wright. "In fact, new listings 
continued to outpace resales, causing the ratio of sales to new listings to 
fall to its lowest level since 1997, handing over increased pricing power to 
buyers. Accordingly, price advances have been limited at best this year." 
RBC's measures edged lower for all housing types, moving down 0.6 percentage 
points to 24.1 per cent for condominiums, down 0.5 percentage points to 37.6 
per cent for two-storey homes and down 0.4 percentage points to 36.0 per cent 
for bungalows. With measures standing close to their historical norms, 
affordability does not appear to be an obstacle to Ottawa-area homebuyers at 
this stage. 
RBC's housing affordability measure for the benchmark detached bungalow in 
Canada's largest cities in the second quarter of 2014 is as follows: Vancouver 
81.8 (down 0.3 percentage points from the previous quarter); Toronto 55.9 
(down 0.2 percentage points); Montreal 37.3 (down 1.6 percentage points); 
Ottawa 36.0 (down 0.4 percentage points); Calgary 33.6 (down 0.8 percentage 
points); Edmonton 31.7 (down 1.1 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. 
It is important to note that RBC's measure is designed to gauge ownership 
costs associated with buying a home at present market values. It is not a 
representation of the actual costs incurred by current owners, the vast 
majority of whom have bought in the past at significantly different values 
than those prevailing in the latest period. 
Highlights from across Canada: 
British Columbia: affordability broadly improves 

        --  Housing affordability in the province improved across the board
            in the second quarter, with two-storey homes and condos
            reaching their most attractive levels since late 2009. RBC's
            affordability measures for B.C. fell between 0.9 and 2.0
            percentage points. Still, owning a home at market price in an
            area such as Vancouver continued to be very difficult for an
            average household to afford.

Alberta: housing affordability remains attractive
        --  Escalating prices in the province were largely taken in stride
            by Alberta homebuyers in Q2 as lower mortgage rates and solid
            growth in household incomes provided offset. Affordability in
            the province improved modestly with RBC measures easing between
            0.2 and 0.9 percentage points.

Saskatchewan: homebuyers face little undue affordability pressure
        --  The provincial housing market rebounded strongly in the second
            quarter with home resales jumping to a new record-high. At the
            same time, RBC's affordability measures for Saskatchewan fell
            between 1.3 and 0.8 percentage points, and stood close to their
            historical averages.

Manitoba: new home listings surge; affordability plays largely neutral role
        --  The big housing market story in Manitoba was a surge of homes
            being offered for sale with new listings growing to levels
            almost 14 per cent above where they were a year ago. RBC's
            affordability measures fell between 0.5 and 1.5 percentage
            points but remained close to long-run averages, suggesting that
            affordability likely plays a neutral role in home buying
            decisions in the province.

Quebec: improved affordability helps halt housing market slide
        --  Quebec's housing market activity, which had been falling since
            early 2012, stabilized in Q2. Home resales rose modestly and
            the supply of homes for sale grew. Second quarter affordability
            measures for the province eased for all housing types - between
            0.9 and 1.8 percentage points. This improvement in
            affordability likely helped stabilize the market at the margin
            in the latest quarter.

Atlantic Canada: attractive affordability conditions
        --  The region's housing affordability conditions improved quite
            noticeably in the second quarter thanks to lower mortgage rates
            and subdued price pressures. RBC's measures for Atlantic Canada
            dropped between 0.9 and 1.8 percentage points.

The full RBC Housing Trends and Affordability report is available online, as 
of 8 a.m. ET today.

Robert Hogue, Senior Economist, RBC Economics Research, 416-974-6192 Elyse 
Lalonde, Communications, RBC Capital Markets, 416-842-5635 
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ST: Ontario
-0- Aug/28/2014 09:00 GMT
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