Canada's Condominium Magazine

Home ownership became a little less costly in third quarter: RBC

Except for the usual places, homes are reasonably affordable in Canada and became a little more so in the three months from July through September. RBC’s latest affordability report says that a combination of lower utility costs, continuing low interest rates, and rising incomes made the costs of ownership “a little lighter” for most housing types in most parts of the country. For the third consecutive quarter, affordability improved for low-rise home types; for condominiums, it was the fourth straight “easing” of ownership costs. Condos continue to be the most affordable option “in every market,” which explains their popularity over the past many years.

Outside of Toronto and Vancouver, where affordability is most “stretched,” the report says, there is little evidence of “undue affordability stress.” Even Toronto got some relief, though conditions are still worse than they were a year ago. Affordability improved slightly for two-storey homes and condos, while edging up for bungalows. The bank seems to give a shake of its corporate head as it notes that whatever affordability stress exists in Toronto, it “does not seem to bother homebuyers.” Sales of homes in Toronto continued to power ahead to near-record levels, held back only by a lack of new listings. Third-quarter resales were the second-highest on record for that period.

Overall, RBC says, the housing market in Canada is “quite solid,” though there is a split between the hot markets of Toronto, Vancouver and Calgary, and the “balanced or soft conditions” in much of the rest of the country. This split shows in contrasting price trends, with home prices in the main cities far outpacing price growth elsewhere.

There is one caution, of course, and that is the familiar one: interest rates will not stay low forever. RBC is forecasting the beginning of an upward trend in mid-2015. The return to higher interest rates will “reverse” the improvements in affordability seen over the past several quarters. This will mean lower resale levels and slower price growth as interest rates return to “normal” levels.

The overall tone of Canada’s housing market continues to be quite solid at this late stage of 2014, with home resales sustained near the highest levels since early 2010 . . . Strength at the national level primarily reflects robust activity in a trio of ‘hot’ markets—namely Calgary, Toronto, and Vancouver—where the supply of homes for sale remains tight relative to solid homebuyer demand. Heat in these markets overshadows balanced or soft conditions elsewhere in the country.

RBC Housing Trends and Affordability November 2014

Conditions in Ontario more or less mirrored those in Toronto, with slightly better affordability and very strong resales in the third quarter.

affordability-West-Village-Decorium-Tridel-Toronto-condominium-RBC-Condo.ca
Model suite at West Village condominiums from Tridel. RBC housing affordability report for the third quarter notes that condos remain the most affordable housing option in all markets in Canada.

RBC’s favourable affordability report comes a few days after a CIBC analysis in which economist Benjamin Tal stated that Toronto’s housing market is well supported by immigration and demographic factors. Also out earlier this week was a report by Canada Mortgage and Housing Corporation which stated that Canada’s housing market is essentially healthy, not overvalued or overbuilt as has been claimed by some, mainly foreign, observers.

[colorbox title=”Housing Affordability Index” color=”#333333″]The RBC Housing Affordability Measures show the proportion of median pre-tax household income that would be required to service the cost of mortgage payments (principal and interest), property taxes, and utilities on a detached bungalow, a standard two- storey home and a standard condo (excluding maintenance fees) at the going market prices.

The RBC housing affordability measure for the third quarter of 2014, detached bungalow:

  • Vancouver 83.6, up 1.6 percentage points from the previous quarter
  • Toronto 56.3, up 0.3 percentage points
  • Montreal 37.0, down 0.3 percentage points
  • Ottawa 35.7, down 0.3 percentage points
  • Calgary 34.2, up 0.6 percentage points
  • Edmonton 31.9, up 0.2 percentage points[/colorbox]

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