Canadian homes slightly less affordable in the second quarter of 2013: RBC Economics
TORONTO, August 27, 2013 Owning a home in Canada became slightly less affordable in the second quarter of 2013, according to the latest Housing Trends and Affordability Report issued today by RBC Economics Research. Erosion in affordability didn’t hinder activity, however; home resales and housing starts have shown renewed vigour since the spring across the country, reversing part of the cooling that took place in the second half of 2012 and early 2013.
“Homebuyers seemed unfazed by the slight deterioration in affordability – we saw the market regain some momentum in the second quarter with home resales increasing 6.4 per cent,” said Craig Wright, senior vice-president and chief economist, RBC. “Resales should stabilize close to the recent not-too-hot, not-too-cold levels in the near-term, barring any further changes in housing policy by the federal government.”
The RBC housing affordability measure captures the proportion of pre-tax household income that would be needed to service the costs of owning a specified category of home at going market values (a rise in the measure represents deterioration in affordability).
During the second quarter of 2013, affordability measures at the national level rose for two of the three categories of homes tracked. RBC’s measure for the detached bungalow rose 0.3 percentage points and for the standard two-storey home rose 0.4 percentage points to 42.7 per cent and 48.4 per cent, respectively. The measure for the standard condominium was unchanged at 27.9 per cent.
The RBC report notes that, in past years, demand-supply conditions were relatively tighter for single-family homes compared to condos. These conditions have consistently applied relatively greater upward pressure on single-family homes’ homeownership costs. The cumulative effect of these varying pressures has been driving affordability levels below their historical averages for bungalows, and especially, two-storey homes, while staying roughly on par for condominium apartments.
“The two-tiered affordability picture we are seeing nationally primarily reflects the conditions in Canada’s three largest markets: Toronto, Montreal and Vancouver. It has become a bit of a stretch for a typical household to own a bungalow or two-storey dwelling in these cities,” said Wright. “It’s important to note that we are not seeing many signs indicating that owning a home - of any type - is out of reach for households in other local markets.”
What is keeping affordability levels generally manageable for Canada’s homebuyers? RBC says it’s the current exceptionally low interest rates. RBC anticipates that the Bank of Canada will keep its overnight rate unchanged at 1.0 per cent through the remainder of 2013 and will gradually begin raising it starting in mid-2014, which should largely mitigate risks of serious deterioration in affordability levels.
In most of Canada’s local markets there was some slippage of affordability in the second quarter of 2013. The most noticeable deterioration was in Vancouver where, after four quarters of mostly continuous improvement, the bungalow and two-storey home segments recorded a significant slide. Erosion in other markets was generally minor, with perhaps the exception of Edmonton’s detached bungalow segment.
RBC’s housing affordability measure for the benchmark detached bungalow in Canada’s largest cities is as follows: Vancouver 82.1 per cent (up 2.2 percentage points from the previous quarter); Toronto 54.5 per cent (up 0.5 percentage points); Montreal 38.1 (down 0.7 percentage points); Ottawa 37.1 (up 0.5 percentage points); Edmonton 34.0 (up 1.8 percentage points); Calgary 33.0 (unchanged).
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.
Highlights from across Canada:
- British Columbia: affordability takes one step back
Homeownership of single-family homes in the province became less affordable in the second quarter of 2013 amid a surge in resale activity since early spring following a near two-year long cooling stretch. RBC measures rose by 1.1 percentage points for bungalows, by 0.8 percentage points for two-storey homes, and by only 0.1 percentage points for condominiums.
- Alberta: homeownership remains relatively affordable
Owning a home in Alberta continued to be relatively affordable for provincial homebuyers despite some increases in ownership costs in the past two quarters. RBC’s affordability measures for the province rose between 0.1 and 0.7 percentage points across all housing types in the second quarter; yet, levels still stood below their long-term averages.
- Saskatchewan: seesaw affordability pattern endures
Affordability in the province continued to experience a seesaw-like pattern which has characterized this market in recent years. RBC measures rose modestly by 0.9 percentage points for bungalow and 0.5 percentage points for two-storey homes in the latest period, while the measure for condominiums inched lower by 0.3 percentage points.
- Manitoba: housing affordability a mixed bag
The province’s second quarter housing affordability developments proved to be a mixed bag with RBC’s measure for the two-storey home category rising by 1.8 percentage points, the measure for bungalows down slightly by 0.2 percentage points, and the measure for condominiums edging up by 0.2 percentage points.
- Ontario: steady as she goes
There was little change in housing affordability in Ontario in the second quarter. RBC’s measures for both bungalows and two-storey homes rose by 0.2 percentage points relative to the first quarter, while the measure for condominiums remained flat.
- Quebec: bucking the deteriorating affordability trend
The Quebec housing market bucked the national trend by enjoying a broad-based improvement in affordability in the second quarter. RBC affordability measure for the province fell by 0.5 percentage points for bungalows and 0.4 percentage points for condominiums; the measure for two-storey homes remained unchanged.
- Atlantic Canada: affordability stuck in neutral
Atlantic Canada’s housing affordability levels remained relatively static at neutral levels in the second quarter of 2013. Affordability measures moved marginally in all categories tracked by RBC: bungalows and condominiums edged lower by 0.1 percentage points and 0.2 percentage points, respectively; two-storey homes edged up by 0.1 percentage points.
The full RBC Housing Trends and Affordability report is available online, as of 8 a.m. ET today, at rbc.com/economics/market/.
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For more information, please contact:
Wright, Senior Vice-President and Chief Economist,
RBC, 416 974-7457
Hogue, Senior Economist, RBC Economics Research,
Lalonde, Manager, Corporate Communications,
RBC Capital Markets, 416 842-5635