RBC: Canadian housing affordability deteriorates in Q4 thanks to Toronto price gains

RBC housing affordability

Photo: Michael Gil/Flickr

According to the fourth quarter report from the Royal Bank of Canada (RBC), housing became less affordable for Canadians for the second quarter in a row.

Eroding affordability is thanks to the seemingly unstoppable price growth in the Toronto metro area, which pulled the Canada-wide average up. The majority of local markets in Canada actually saw affordability improve, with Calgary experiencing an ease in costs for all housing types and affordability improving for bungalows in Vancouver and condos in Montreal.

“We are watching Toronto pretty closely as it’s a market that time and time again shows deteriorating affordability – indicating that owning a home in the area, especially a single detached, is a stretch for many local homebuyers,” said Craig Wright, the senior vice-president and chief economist at RBC, in a statement.

“While we’ve seen some improvements over the past couple of years, Vancouver still takes the top spot for the least affordable market in Canada.”

The affordability measure, which calculates the proportion of pre-tax household income needed to service the costs of owning a home at current market values, rose 0.1 percentage points in Q4-2014 to 42.7 per cent for bungalows in Canada. The fourth quarter average price for the property type is now $402,700. Standard two-storey homes, which now average $449,900, saw their affordability measure edge up 0.2 percentage points to 48.1 per cent. Standard condos, which have an average price of $251,200, saw their rate of 27.4 per cent go unchanged.

In Toronto, the average price for a bungalow was $634,000 in the fourth quarter. The RBC housing affordability measure rose 0.8 points to 56.8. For two-storey houses affordability eroded even more as the measure increased 1.8 to 65.6 per cent. The average price now sits at $725,600. Condos also experienced declining affordability, albeit not as much as the low-rise sector: the average price was $362,600 and the affordability rate is 33.9 per cent, up 0.3 from the previous quarter.

The Bank of Canada’s recent cut to the overnight rate will likely improve housing affordability in the near future, but RBC says that could change.

“By 2016 however, we expect the Bank of Canada will reverse course and begin to normalize monetary policy – any rise in interest rates would threaten to erode affordability conditions and weigh on homebuyer demand in Canada.”

Here’s how the major metro areas fared in Q4-2014. The qualifying income is the minimum annual income used by lenders to measure the ability of a borrower to make mortgage payments (typically, no more than 32 per cent of a borrower’s gross annual income):

Facebook Chatter

comments