Housing affordability rolls on but improvement could be running out of steam, says RBC Economics
TORONTO, September 9, 2009 — Home ownership in Canada became more affordable for the fifth straight quarter with modest improvement registered across the country, according to the second quarter housing report released today by RBC Economics Research.
"Following the biggest quarterly improvements on record in the first quarter and continued improvement in the second quarter, the national home affordability level has been restored to pre-housing boom levels," said Robert Hogue, senior economist, RBC. "However, the recuperative phase of the affordability cycle seems to be drawing to a close with housing prices firming up in many parts of the country and mortgage rates no longer trending downward."
The RBC Housing Affordability measure captures the proportion of pre-tax household income needed to service the costs of owning a home. During the second quarter of 2009, the RBC Affordability measure at the national level improved modestly across all housing segments, as the benchmark detached bungalow moved to 39.1 per cent, the standard townhouse to 31.5 per cent, the standard condo to 26.9 per cent and the standard two-storey home to 44.4 per cent respectively.
The report found that measures fell at the national level by 0.4 percentage points for standard condominiums and 0.6 percentage points for two-storey homes, detached bungalows and standard townhouses - marking the fifth consecutive quarterly decline in home ownership costs (the lower the measure, the more inexpensive it is to afford a home).
"The leveling off of home affordability is not expected to stop the impressive resurgence in the housing market," added Hogue. "Supply of properties for sale is dropping as demand bounces back, which is working to heat up prices again in many parts of the country."
RBC's Affordability measure for a detached bungalow for Canada's largest cities is as follows: Vancouver 63.4 per cent, Toronto 46.5 per cent, Ottawa 38.6 per cent, Montreal 37.3 per cent and Calgary 35.7 per cent.
The Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an Affordability reading of 50 per cent means that homeownership costs, including
mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.
Highlights from Across the Country:
Manitoba: The notable easing of homeownership costs in the past year has fully repaired affordability in Manitoba, compared to historical averages. Resale activity ramped up during spring and summer and property prices generally maintained their steady upward trend, supported by relatively tight market conditions.
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