In Canada’s former hottest housing market, housing affordability improved slightly in 2016’s last quarter but it remains incredibly challenging for first-time buyers in Vancouver to enter the market.
Despite the city still having the most expensive housing market in Canada, for the first time in three years its housing affordability has eased, according to RBC’s fourth quarter report published last week.
RBC calculates a market’s housing affordability measure based on the median pre-tax household income required to pay mortgages (principal and interest), property taxes and utilities for the average market price of homes, including condos. The higher the affordability measure is in a market, the less affordable the market is for homebuyers.
Even though Vancouver’s aggregate affordability measure saw a drop of 5.2 percentage points since 2014, entering the market is a long shot for many, as the measure was still 84.8 per cent in 2016’s fourth quarter, by far the highest in the country.
“It’s still very elevated,” says RBC Chief Economist Craig Wright to BuzzBuzzNews. “It is still very much a stretch, particularly for first-time homebuyers, to get into the Vancouver market,” he adds.
Condo affordability in Vancouver is not as steep, at 46.1 per cent in 2016’s last quarter but still challenging for average households.
Meanwhile, the Toronto market deteriorated to its record worse affordability measure since 1990, at 64.6 per cent in the final quarter of 2016.
Sitting in a high-risk zone, RBC says Toronto’s eroding measure reflects the strain of supply and demand causing single-detached home prices to escalate, along with an increase in condo values.
“When prices start shooting up so significantly driven by speculation, it starts to distort the signals and that’s when you start to get worried,” says Wright. “Hopefully authorities cap the enthusiasm and people don’t expect prices to rise by 33 per cent a year ahead,” he continues.
According to the report, the introduction of policies by the federal and BC governments last year, including Metro Vancouver’s 15 per cent foreign-buyer tax, contributed to the decline of home resales in Vancouver significantly, which in turn, positively impacted home prices and affordability. Also, supply and demand in the city have become more balanced over the past year, further influencing the affordability measure.
To escape Vancouver’s red-hot market, many homebuyers travelled to less expensive Victoria, but towards the end of 2016 that influx lost steam, as home prices started to rise.
In Victoria, 55.1 per cent of an average household income went to housing costs in 2016’s fourth quarter, reaching a six-year high.
“We didn’t see the impact of policy on Victoria, and that’s part of what of we’ve seen, that prices continue to hold up,” says Wright.
So far this year, demand and supply conditions continue to be tight in Victoria, signalling the likelihood of upward price pressure and affordability deteriorating further, says RBC.
Overall, Canadian housing affordability has remained unchanged in 2016’s last quarter, compared to the third quarter last year.
Ending six consecutive quarterly increases, the national affordability measure was 44.2 per cent in the fourth quarter of 2016.
The majority of other Canadian markets’ affordability levels remained close to historical norms, in last year’s final quarter.