canadian housing affordability Photo: Nick Kenrick/Flickr

The affordability of Canada’s housing market deteriorated during the first three months of year as house prices — particularly those of the single-family variety — continued to climb in many of the country’s largest markets.

“Prices for single-family homes in Calgary, Toronto and Vancouver had considerable upward momentum during the first quarter, and led to the strongest annual price gains nationally in nearly two years,” said RBC chief economist Craig Wright in the bank’s latest Housing Trends and Affordability report. “This stood in the way of any widespread improvement in affordability conditions across Canada.”

To gauge affordability, the RBC index measures the percentage of pre-tax household income that a homeowner needs to commit in order to be able to afford a home at current market prices — including mortgage payments, utility bills and property taxes.

Nationally, the index rose by 0.1 points to 43.2 per cent for detached bungalows and 0.3 points to 49.0 per cent for two-storey homes. Meanwhile, the measure for condos actually dipped (meaning they became more affordable) by 0.1 points to 27.9 per cent.

canada housing affordability

That all noted, the latest knock to affordability, RBC says, was modest and did not pose any immediate threat to the health of Canada’s housing market.

However, if prices continue to accelerate in key markets in the near-term, affordability could come under pressure. The bank says potential offsets could come from a rapid growth in household incomes or a further drop in mortgage rates.

“We expect the Bank of Canada to gradually raise the overnight rate starting in the middle of 2015, which will cause bond yields to drift gently upward,” said Wright. “This should mitigate the risk that higher rates will unhinge affordability levels.”

The affordability index in Canada’s four largest markets

Vancouver

During the first quarter of 2014 affordability deteriorated in Canada’s most unaffordable market — good news for market confidence but not so much for those looking to buy in. In Vancouver, RBC’s measure rose for both bungalows (by 0.9 percentage points to 82.4 per cent) and two-storey homes (by 0.6 points to 86.5 per cent), while the measure for condos declined for the third straight quarter (by 1.0 percentage point to 39.9 per cent).

vancouver housing affordability

Calgary

RBC says Calgary is the “star performer” of Canada’s housing market and has everything going for it: a strong economy, solid demographic demand and attractive affordability. And while the market is clearly trending upwards, it doesn’t appear to be getting ahead of itself. The affordability index increased in all three categories (by 0.9 percentage points for bungalows to 34.5 per cent, 1.0 point for two-storey homes to 35.0 per cent, and 0.5 percentage points for condo to 20.4 per cent) but each measure continue to be well below long-term averages, which suggests the market growth is sustainable.

calgary housing affordability

Toronto

Affordability has deteriorated substantially in recent years in the Toronto area, particularly for the single-family home market. This again was the case in the first quarter of 2014, with all RBC’s measures moving up by between 0.1 and 1.3 percentage points.

toronto housing affordability

Montreal

RBC says housing affordability in Montreal continues to be at levels that generally should not deter homebuyers. The two-storey home segment may be an exception, however, as the index for this category exceeds its long-term average. In the first quarter of the year, RBC’s measures edged higher for bungalows (by 0.1 percentage points), were unchanged for two-storey homes, and declined by 0.2 percentage points for condos.

montreal housing affordability

If you’d like to delve deeper into the national and regional numbers, the full report can be downloaded as a PDF here.

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