RBC: erosion of housing affordability

By Romana King on May 20, 2011
Estimated reading time: 2 minutes

The nation's residential real estate market felt the impact of gains in property prices, the threats of higher interest rates and tighter mortgage rules.

Beer, hockey and Timmies. The three elements that bind all of us Canucks (at least in media-contrived theory). Now add another: affordability. Or make that lack of affordability. According to the latest RBC Housing Trends report the “Canadian housing affordability eroded in the first quarter of 2011.” Eroded. As in the sometimes quickly, sometimes slowly disappearance of our ability to buy a home. And the RBC Economics Research provincial statistics certainly show this to be the case. In Ontario, housing affordability remained fairly stable in this first half of 2011, although the current outlook is that this will change over the next few months. “Despite signs of deterioration, affordability levels in Toronto remain close to their long-term averages, indicating that the cost of owning a home has not yet reached dangerously high levels in the GTA,” says Robert Hogue, senior economist, RBC. But Hogue predicts “headwinds” in the coming months with stricter mortgage lending rules and interest rates expected to rise. Over the first three months of 2011, homeownership also became a little less affordable in the Ottawa area, as residential property values increased for the second consecutive quarter and boosted the ownership costs of most housing types. “Market conditions in Ottawa tightened early this year because of a decline of new properties being offered for sale,” noted Hogue. “Nevertheless, the impact of rising prices on homebuyer’s ability to afford a home was tempered by continued income gains in the city, which provided some extra budget room.” The most notable decrease in affordability was in B.C. primarily because of the sizeable deterioration in affordability in Vancouver as property values drove costs up even higher. Atlantic Canada and Quebec also witnessed the erosion of affordability, while Alberta and Saskatchewan experienced ups and downs depending on the type of house. Of note, is that based on the numbers, there are tentative signs that the Calgary market if finally firming up. The RBC housing affordability report captures each province’s proportion of pre-tax household income needed to service the costs of owning a home and iis based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market in Canada. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50% means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50% of a typical household’s monthly pre-tax income. The full RBC Housing Trends and Affordability report is available online at www.rbc.com/economics/market/pdf/house.pdf.