- A decline in property values helped improve RBC's
affordability measure for Canada
for the first time in more than three years in Q4/2018
- The improvement was widespread across the country
- Owning a home in Vancouver,
Toronto and Victoria is still way out of reach for many
buyers
TORONTO, March 28, 2019 /CNW/ - After three years of
deteriorating housing affordability in Canada, a measure of relief arrived for
prospective home owners, according to the latest RBC Economics
Housing Trends and Affordability Report.
The broad-based softening of housing market activity helped
lower home ownership costs nearly everywhere in Canada, taking down RBC's aggregate housing
affordability measure by 0.7 percentage points to 51.9 per cent
last quarter. This measure is calculated as a share of household
income. A lower number means that buying a home is more
affordable.
Still, the fourth-quarter relief barely made a dent in
Vancouver and Toronto where affordability remains at crisis
levels. Owning a home in both of these markets, as well as in
Victoria and increasingly
Montreal, is a huge stretch for
ordinary buyers.
Across the rest of the country, however, housing affordability
levels are generally within historical norms. The affordability
strains present in Canada are
still confined to a few—but large—markets.
The good news is that the dip in ownership costs in the fourth
quarter is unlikely to be an aberration.
"We have lowered our profile for future interest rates in light
of disappointing economic developments since the late stages of
2018," said Craig Wright, Senior
Vice-President and Chief Economist, RBC. "Furthermore, we also see
very little scope for home prices to increase nationally this
year."
With tight labour markets poised to keep household income
growing, the stars are aligning for more affordability relief in
the period ahead.
Affordability crisis magnifies Vancouver market correction
Much of the
improvement in RBC's aggregate affordability measure came from a
fall in prices in Vancouver, where
the market is now in full-blown correction mode. Home resales have
plummeted 58 per cent since early 2016 with no signs of a
turnaround so far in 2019. But with Vancouver ownership costs still representing
84.7 per cent of household income, the market is still a long way
from ending the affordability crisis.
Owning a home still a stretch for Toronto buyers, despite market cooling
In Toronto, owning a home remains
a huge stretch for many buyers. Despite a significant cooling to
the Toronto housing market, RBC's
aggregate measure (66.1 per cent) continues to be near historical
highs. RBC Economics does not expect the market to reverse its
two-year, 31 per cent sales decline any time soon. Furthermore, it
is expected that prices will likely stay flat overall this
year.
Decade-low affordability not an obstacle for Montreal buyers
With a vibrant economy
and increasing international interest, homebuyer demand has been
solid in Montreal. Property values
are going up, but at a controlled pace. As a result, housing
affordability is eroding gradually to levels that could potentially
pinch buyers—though so far they haven't shown any sign of balking.
RBC's aggregate measure of 44.5 per cent is near a decade high.
Buying a condo a bigger step up than ever from
renting
Intense affordability pressures present in
Canada's largest markets over the
past few years have boosted demand for lower-priced housing
options—mainly condos. The catch has been, however, that condo
prices have risen sharply, which eroded condo affordability. Over
the past year, condos' affordability advantage has narrowed: RBC's
affordability measure for condos in Canada increased by 2.8 percentage points
compared to only 0.9 percentage points for single-detached homes.
The appeal of condo ownership is also diminishing relative to
renting an apartment in Canada's
priciest markets. Buyers of an average condo in Vancouver, Toronto, Victoria and Montreal pay a premium of more than
$900 per month relative to renting a
two-bedroom apartment. That premium has ballooned in the past three
years. Buying a condo is a bigger step up from renting than it's
ever been in these cities.
About RBC
Royal Bank of Canada is a global financial institution with
a purpose-driven, principles-led approach to delivering leading
performance. Our success comes from the 84,000+ employees who bring
our vision, values and strategy to life so we can help our clients
thrive and communities prosper. As Canada's biggest bank, and one of the largest
in the world based on market capitalization, we have a diversified
business model with a focus on innovation and providing exceptional
experiences to our 16 million clients in Canada, the U.S. and 33 other countries. Learn
more at rbc.com.
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SOURCE RBC