RBC reports that while market is softening, risk of U.S.-style meltdown remote
METRO VANCOUVER - Housing has become slightly more affordable in Metro Vancouver, according to the latest quarterly measure of banker RBC.
Metro Vancouver has long been Canada's most expensive place to buy a home, but recent price drops have "brought some minor relief" to the market, RBC senior economist Robert Hogue said in the report, adding that "much more is likely coming."
RBC's affordability index calculates what portion of the median family income it would take to cover the costs of home ownership for different home types, assuming a standard 25-year mortgage.
In Vancouver, where prices have been falling since spring, RBC saw the index mark shrink, with standard bungalows leading the way. To own a standard Vancouver bungalow worth $612,400 required 74.8 per cent of the median income in the third quarter of 2008, down from 78.8 per cent in the second quarter.
However, the real qualifying income for such a mortgage was $135,000.
The affordability index measure for a standard two-storey home worth $691,800 slipped to 84.3 per cent of median pre-tax income from 87.3 per cent in the second quarter.
The qualifying income for the mortgage on that home was $152,100, so "the vast majority of Vancouver families are effectively shut out of those market segments," Hogue wrote.
And while housing has started to become more affordable in all parts of the country, the RBC report showed that it still takes a historically large chunk of family income to cover the costs of home ownership.
Nationally, the average price of a detached bungalow in the third quarter was $304,100, up 3.3 per cent from a year earlier.
It took 45.7 per cent of median pre-tax household income to cover the costs of owning that bungalow in the third quarter, down from 46.8 per cent in the second quarter, the RBC affordability index shows.
That, however, is still one of the highest levels since the last housing market recession in the early 1990s. It is still well above the less than 40 per cent of income needed to cover the cost of owning a bungalow through the latter half of the 1990s and into the current decade.
RBC's third-quarter housing report was issued amid news from Canada Mortgage and Housing Corp. that housing construction starts took a larger-than-expected dive in November to a seven-year low of 172,000 units, and a warning of continued weakness through the next year.
In British Columbia, November housing starts fell a dramatic 62 per cent to 1,454 units, according to CMHC figures. The 29,370 total starts CMHC counted by the end of November represented a decline of almost nine per cent.
Metro Vancouver's November housing starts shrank 64 per cent to 971 units. However, that is a comparison to an extraordinary month in November 2007, Peter Simpson, CEO of the Greater Vancouver Home Builders' Association said in an interview.
Metro Vancouver starts to the end of November, at 18,481, were five per cent off 2007's construction pace, which Simpson said was no surprise given changing market conditions.
Sales are the precursor to starts, Simpson said, so with slowing housing pre-sales, "we always knew it was only a matter of time before this year's starts fell below last year's rate [of construction]."
However, RBC said that while the housing market is weakening, a U.S.-style plunge in Canada is not likely.
"Many of the factors that triggered the collapse in the United States are either absent or of much lower significance on this side of the border," Hogue wrote.
The subprime business in Canada remains marginal, banks are stable and still lending, households are generally not overstretched financially and speculation in the housing market is more subdued, it noted.
"These factors should provide enough of a foundation to prevent housing markets from spiralling down even as the Canadian economy slips into recession," Hogue said.
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