Photo: Jamie McCaffrey/Flickr
Housing became slightly less affordable in Canada in the second quarter as the hot housing markets in Toronto and Vancouver impacted affordability at a national level.
In a new report published Monday, RBC economists Craig White and Robert Hogue called the disparity in detached home prices between those major cities and the rest of the Canada “the central theme for housing affordability.”
The countrywide affordability measure for standard two-story homes climbed to 48.3 per cent, a 0.4 per cent increase over Q1, while condos were still the most affordable at 27.1 per cent, unchanged over last quarter.
RBC’s affordability measure shows the percentage of median pre-tax household income that would be needed to service principal and interest mortgage payment costs, property taxes, and utilities for bungalows, two-story homes, and condos — excluding maintenance fees — at market prices.
It assumes a 25 per cent down payment on a 25-year mortgage at a five-year fixed rate.
The standard detached two-story home in Vancouver is now $979,600, putting the affordability measure at 90.6 per cent, according to RBC. This is by far the highest rate in the country and a 3.7 per cent increase over last quarter.
Toronto is a distant second at 67.5 per cent for a standard two-story home — which on average costs $779,500 there — or 0.7 per cent higher than last quarter. This is considerably more than what you’ll see in Montreal, which has an affordability measure of 46.3 per cent for this housing type carrying an average price of $395,800.
Chart: RBC Economics
In the condo market, Toronto and Vancouver are also the least affordable, although price gains and the resultant declines in affordability are less pronounced.
Chart: RBC Economics
“With home prices still in acceleration mode in both Toronto and Vancouver at this point — and tight demand-supply conditions suggesting that they will remain so in the near term — affordability is likely to deteriorate further in these markets in the period ahead,” the report read.
Meanwhile other cities like Calgary, Ottawa, and Montreal actually became more affordable in the second quarter.
While RBC expects “more of the same in the period ahead” for Toronto and Vancouver, these markets aren’t without risk. In line with commentary from leading economists BuzzBuzzHome News recently published, the possibility of an interest rate hike presents a risk for Canada’s housing market, according to RBC.
“A significant rise in interest rates could change this two-tiered picture by negatively affecting affordability across all regions of Canada,” said the report. “However, we expect policy interest rates to remain low in the coming year.”