- It has never been so unaffordable to own a single-detached home in the Vancouver area
- Toronto is seeing rapid deterioration in affordability, particularly for single-detached homes
- Affordability in the majority of other Canadian markets is improved or stable
TORONTO, Feb. 29, 2016 /CNW/ – Housing affordability generally remained stable across Canada in the fourth quarter of 2015, with the exception of the scorching Vancouver and Toronto markets where soaring home prices continued to raise the bar on homeownership to ever higher levels, according to the latest Housing Trends and Affordability Report issued today by RBC Economics Research.
On a national level, housing affordability in Canada deteriorated slightly in the final quarter of 2015 as RBC’s Q4 Housing Affordability measures continued to highlight marked regional differences.
“The significant rise in homeownership costs in Vancouver and Toronto had a dominant influence on Canada-wide affordability measures in the fourth quarter of 2015,” said Craig Wright, RBC Chief Economist. “While prices continue to escalate in Vancouver and Toronto markets, there are few signs that housing affordability is problematic elsewhere in Canada. Homes in other markets remain affordable with the situation either improving or remaining fairly stable,” added Wright.
Moreover, within Vancouver and Toronto there is also a clear divergence in affordability conditions between single-detached homes and condo apartments. Most of the affordability-related stress is concentrated in the single-detached segment. Owning a condo apartment, on the other hand, is still within reach for many households in those two markets.
The RBC Housing Affordability measure captures the proportion of pre-tax household income required to service the cost of owning a specific category of home at current market value (an increase in the measure represents a deterioration in affordability). For example, an affordability reading of 50 per cent means that home ownership costs, including mortgage payments, utilities and property taxes, would take up 50 per cent of a typical household’s monthly pre-tax income.
RBC’s housing affordability measure for the aggregate of all housing types in Canada rose by 0.6 percentage points to 46.7 per cent in the fourth quarter of 2015, the highest level in more than five years. The slight increase was broadly based across housing categories with the measure for single-detached homes climbing 0.6 percentage points to 51.3 per cent, and condo apartments moving up by 0.3 percentage points to 35.2 per cent.
Regional disparities expected to continue
“Current market conditions suggest that housing affordability in Vancouver and Toronto will stay on a deteriorating path in the near term. Sellers are very much in control of both markets, and prices are likely to continue to rise rapidly in the coming months,” added Wright. “Recent changes to mortgage insurance rules aimed at cooling high-priced markets may slow down price increases at the margin but we do not believe they will materially reverse current momentum.”
Conditions in Vancouver, in particular, show increasing signs of over-heating in single-detached segments where home prices have skyrocketed in the past year. With an average price exceeding $1.2 million, single-detached homes have long slipped out of reach for the average local homebuyer. Purchasing a condo apartment is the only realistic option for most first-time buyersâalthough this too has become slightly less affordable in the last two quarters. Single-detached home affordability in Toronto continues to slip deeper into stressful territory for homebuyers; however, conditions are not as extreme as they are in Vancouver.
The housing affordability situation is much more constructive elsewhere in Canada. The balance of supply and demand in most other markets indicates that prices will rise more slowly and affordability measures therefore are likely to be more stable.
Most of the markets seeing steady improvement in affordability were in the Atlantic region, where demand-supply conditions have been soft for some time amid economic and demographic challenges. In Alberta, flat affordability trends masked weakness in home prices and household income resulting from the energy bust and provincial recession. Price declines in markets such as Calgary will likely lead to improved affordability.
Note: Changes to RBC’s Housing Affordability measures
This issue of Housing Trends and Affordability report includes important changes to the way RBC reports housing affordability:
- We have expanded local coverage to 14 markets from six previously, thereby offering richer information on regions;
- We present a simple, all-encompassing aggregate measure of all housing categories for each market, as well as separate measures for single-detached homes and condominium apartments to highlight distinctive trends; and
- The affordability measures are based on new source data for home prices (supplied by Brookfield RPS) following the discontinuation of price data earlier sourced from Royal LePage.
Due to these changes, new affordability estimates are not strictly comparable to estimates reported in previous Housing Trends and Affordability reports. A more detailed description of changes and their implications can be found in a note accompanying the full report.
More details regarding provincial and regional housing figures can be found in the attached fact sheet.
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