House prices may be up nationally, but affordability of the housing market hasn’t changed much yet in Canada this year, according to a new Royal Bank of Canada report.
Housing affordability declined in the second quarter of this year due to rising home prices and slightly higher mortgage rates, but it was not enough to slow any markets. That’s because housing still remains generally affordable in Canada, said the RBC.
The RBC Housing Trends and Affordability report, out this week and written by economists Craig Wright and Robert Hogue, tracks ownership costs of various property types as a percentage of household income. Thus the higher the percentage is, the lower the affordability. Condominium apartments were up 0.8 percentage points to 29.2%, detached bungalows were up 1.7 percentage points to 43.3%, and two-storey homes were up 1.8 percentage points to reach 49.3%.
“Despite the erosion so far this year, most local housing markets in Canada continue to be reasonably affordable at this juncture or, at worst, just slightly ‘unaffordable,’ ” wrote the RBC economists. “Affordability measures generally continue to stand near their respective long-term averages.”
One of those markets of concern is Vancouver, where affordability is at or close to the worst level on record, said the RBC. That’s affected British Columbia overall, where affordability slipped further than any other province in the second quarter. An average bungalow in Vancouver jumped 10.4 percentage points on the measure and the cost is now at 92.5% of household income, an all-time high, said the report. A two-storey home is even higher, at 95.5%, whereas a condo in Vancouver is still just under 50% of household income.
“Anecdotal reports suggest that foreign buyers continue to propel higher-end property values, and part of the momentum created is cascading down to other market segments,” said Wright and Hogue.
Year-over-year, Montreal showed the greatest shift away from affordability in two-storey homes, rising in the RBC measure by 2.7 percentage points. But it still was only slightly above the national average with a measure of 55%.
The most affordable area in Canada now seems to be in Alberta, where the affordability measure was the lowest of all regions for all three categories of homes: two-storey homes, condos and bungalows. For Alberta, a two-storey home on the RBC affordability measure in the second quarter was at 36.4%, a condo was at 21.3%, and a 32.8% for an average bungalow.
Edmonton was the most affordable major city of the six highlighted in the report. More details can be found here: http://www.rbc.com/economics/market/pdf/house.pdf