[RBC] Softer housing market in Canada provides some affordability relief
by Joel Bates | March 29, 2019
According to RBC’s latest Housing Trends and Affordability Report, powered in part by Real Property Solutions (RPS) Home Price Index, home ownership costs have started to dip almost everywhere in Canada. An easing in property values, offset slightly by higher interest rates, brought most of the affordability relief with the first home price decline in some time.
The RBC Housing Affordability Measure
The RBC Housing Affordability Measure shows the proportion of household income required to service the cost of mortgage payments (principal and interest), property taxes, and utilities based on the average market price for a certain housing type in a given market. A higher number means that buying a home is less affordable. Current home prices are sourced from the RPS House Price Index. The affordability measures are based on a 25% down payment, a 25-year mortgage loan at a five-year fixed rate and are estimated on a quarterly bases for 14 major urban markets and a national composite.
Generalized improvement doesn’t really change the big picture – affordability measures remain close to record-high levels
Buying a home in Vancouver, Toronto, Victoria and increasingly Montreal is still a stretch for ordinary Canadians despite all four markets seeing some degree of improvement in the fourth quarter. The national measure shows a similar picture, yet some markets boast affordability levels that are within historical norms. The percentage share of income a household would need to cover ownership costs by highest to lowest for some of the major cities, with the most significant reduction for Toronto and increase in Edmonton since December 2018, are as follows:
What to expect going forward
The outlook for housing affordability has brightened somewhat. RBC has lowered its profile for interest rates and now expect home prices to be flat from an overall level in Canada this year – with further price declines likely in Vancouver and Alberta. With the tight labour market poised to keep household income growing, the stars may be aligned for more affordability relief in the period ahead.