TORONTO — Canada's housing affordability continues to erode as prices rise, especially in Alberta and B.C., while Central Canada's housing market is cooling, says RBC Economics.
In the third quarter, “Alberta and British Columbia had the sharpest erosions in affordability, driven largely by double-digit annual price gains,” the Royal Bank division said Tuesday. “However, Alberta's soaring price gains still leave the province below past affordability stress points.”
Housing in Calgary and Edmonton remains more affordable than in Toronto, Montreal and Vancouver, relative to incomes.
“Vancouver, however, is entering uncharted waters as it sets new records for poor housing affordability in two out of four classes, and the other two will likely do so later this year,” the report says.
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Faster growth in house prices, the weakest annual growth in household incomes since the first quarter of 2005 and slightly higher interest rates have all combined to erode housing affordability in Canada, said Derek Holt, assistant chief economist, RBC.
“While there was a nationwide deterioration, the regional divide in housing markets intensified this quarter, with distinct trends emerging out west, compared to the rest of the country, particularly Central Canada."
The RBC Affordability Index measures the proportion of pre-tax household income needed to service the costs of owning a home.
The higher the index, the more costly it is to afford a home. For example, an Affordability Index 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.
The most affordable housing class remains the standard condo, with an index of 27.5 per cent.
A standard townhouse is next at 31.4 per cent, followed by a detached bungalow at 39.4 per cent. A standard two-storey home is still the least affordable housing type in the country with an index reading of 44.8 per cent.
Quebec's condo market is the only market to have improved in housing affordability this quarter because of a drop in condo prices in the Montreal area. Housing affordability deteriorated for every other housing segment in Ontario and Quebec.
“Ontario's deterioration, however, had to do with interest rate increases, and electricity rate hikes that more than offset the impact of falling natural gas prices on utilities' costs,” RBC said. As a result, Ontario's pace of house price growth has noticeably slowed.
Saskatchewan and Manitoba also witnessed affordability deteriorations, while Atlantic Canada's eroding housing affordability is being disproportionately driven by Nova Scotia, where a listings shortage is sparking price gains in a seller's market.
RBC Affordability Index for a detached bungalow for Canada's largest cities is as follows: Vancouver 68.2 per cent, Toronto 43.9 per cent, Montreal 36 per cent, Calgary 34.6 per cent and Ottawa 30.3 per cent.
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