Heads Up Home Buyers: Affordability On The Rise

home buyers may see affordability increase across Canada

Some good news for home buyers: houses became a bit more affordable in the last three months of 2012, according to a report by RBC.

The Housing Trends and Affordability Report issued by RBC Economics Research showed modest declines in home prices in some key Canadian markets.

“Exceptionally low interest rates have been the key factor keeping home affordability from reaching dangerous levels in recent years,” says Craig Wright, senior vice-president and chief economist for RBC. “Residential property values are elevated in Canada and, for many households, ownership remains accessible only because of rock-bottom mortgage rates – it could be a different story if interest rates were to move swiftly and significantly higher.”

In the report, affordability is based on the proportion of pre-tax household income that would be needed to pay for owning a specified category of home at going market values.

On a national scale, both detached bungalows and condos became 0.2 per cent cheaper to 42.1 per cent and 28.0 per cent, respectively. Two-storey homes became 0.3 percentage points cheaper at 47.8 percent.

A Less Competitive Market

Softer demand since the summer has caused prices to decline modestly in a month-to-month capacity.

“We expect overall housing market activity to remain subdued this year,” says Wright. “That said, we believe that there is scope for some mild strengthening from recent activity levels, as the negative effects of the mortgage insurance rule changes, implemented in July 2012 gradually dissipate.”

 Here’s a break down of affordability levels in each province:

British Columbia: Still a Higher Price Point

Unsurprisingly, Vancouver continues to be the least affordable market, eclipsing other major urban areas in Canada with a detached bungalow priced at 82.2 per cent down, according to RBC’s measures – and that’s a 2.6 percent improvement from the third quarter of 2012.

Needless to say, the province still has a ways to go in terms of affordability.

“The market has a long way to go before affordability reaches less stressful levels,” added Wright.

However condos became 1.1 per cent cheaper and detached bungalows saw a one per cent rise in affordability.

Two storey homes saw a modest 0.4 per ent rise, but keep in mind they had a substantial decline in the third quarter.

“Much of the cooling that took place in B.C. is owed to the Vancouver-area, where affordability tensions are by far the greatest,” he says.

 Alberta – Higher Incomes, Healthy Market

Meanwhile, across the Rockies in one of Canada’s most booming economies, houses became a bit more affordable.

Brisk housing demand was bolstered by accelerating population growth and attractive affordability.

“While homes are not particularly cheap in the province, Albertans boast the highest household incomes in Canada, which helps ensure that the share of their budget taken up by homeownership costs is easily manageable,” says Wright. “Barring an unexpected shock to the economy, housing market conditions in Alberta should remain positive in 2013.”

RBC’s measures for bungalows and two-storey houses fell in terms of (portion of income) by 0.2 per cent to 32.1 and 34.7 per cent, respectively. Condos fell by 0.1 to 19.7 per cent.

In Calgary bungalow affordability was up 0.2 percentage points to 38.1 percent. Meanwhile, Edmonton was down 0.1 per cent to 30.7.

 Saskatchewan – Prices Continue to Climb

The prairie province didn’t fare as well as its booming western neighbour.

“Job market gains and decades-high inflows of migrants into Saskatchewan played a considerable role in the provincial home buying boom witnessed in the first half of 2012,” says Wright. “While market momentum slowed noticeably in the tail end of the year, it wasn’t enough to curb home prices in the province, which continued to climb at some of the faster paces in Canada in the fourth quarter.”

The rise in property values caused affordability to weaken in the fourth quarter with the portion of income increasing by 0.5 and 1.1 percentage points.

Affordability aside, nearly 14,000 homes were sold in 2012, a new record for the province.

 Manitoba – Riding the Boom

Manitoba also had a banner year, with nearly 14,000 homes being sold in the province.

“Comparatively speaking, the cooling in housing activity that took place across the country in the latter half of last year was fairly modest in Manitoba – quite vigorous housing activity persisted,” says Wright. “Our affordability measures for Manitoba continue to stand just slightly above historical averages, suggesting that any affordability-related strain is likely minimal at this point.”

Houses became slightly less affordable with detached bungalows rising by 0.8 per cent to 38.1 per cent and condos saw a 0.3 per cent increase to 24 per cent. Two-storey homes were unchanged at 38.5 per cent.

 Ontario – Still a Seller’s Market

The province saw more balanced housing affordability in the tail end of 2012, with Toronto acting as a major catalyst for balancing market conditions.

“Brisk demand in Toronto’s housing market early last year put sellers firmly in charge, driving prices upward, though this strength waned as the year progressed. Demand cooled significantly during the spring, summer and early fall,” added Wright. “This quick turn of events re-balanced market conditions and gave buyers more leverage to steer prices in their favour during the latter half of 2012.”

For the benchmark detached bungalow in the province’s capital affordability was 52.8 per cent of income – 0.4 per cent cheaper then last quarter.

In the province as a whole condos slipped 0.3 percentage points to 29 and bungalows inched 0.1 per cent to 42.9. Two-storey homes, stepped 0.1 per cent higher to 48.9.

 Quebec – Cooling Customers

Canada’s French-speaking province saw affordability improve but this did little to boost home buyer demand.

“Resale activity began to cool in the spring – a trend that continued through to the end of the year,” adds Wright. “Even still, overall market conditions only slightly softened, which helped to temper the rate of rising home prices rather than cause widespread declines.”

In Montreal, the cost of a bungalow became cheaper falling 0.9 per cent to 39.3.

“Slower momentum in home resales, which were down by more than 15 per cent in the fourth quarter compared to the same period a year earlier, and downward pressure on prices helped to make the Montreal-area market modestly more affordable in the fourth quarter,” he says.

Province-wide two-storey homes slipped 1.1 per cent to 41, while detached bungalows inched down 0.3 percent to 32.8. Condominium apartments climbed 0.4 per cent to 27.4.

 Atlantic Canada – Slipping Sales and Softening Prices

Our Atlantic-faring Canadians experienced a continuation of the affordable housing trend as prices slipped on both one and two-storey dwellings.

RBC measures for two-storey homes fell 1.0 per cent to 36.3 and bungalows slipped 0.5 percentage points to 31.9 –well below their respective national averages. Condos inched up 0.3 per cent to 26.4.

“Even with little to no affordability-related tensions across the region, there was a pull back in fourth quarter home resales, cumulating in a 13 per cent drop since the start of 2012,” says Wright. “This dip in activity, coupled with a steady rise in the number of homes newly listed for sale in 2012, resulted in considerably softer market conditions in Atlantic Canada.”

Related Topics

Buying A Home / First Time Home Buyers / Mortgage News / Mortgages

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