vancouver-toronto-unaffordable Photo: Kenny Louie/Flickr

There is an element of danger in Canada’s housing market, and it’s threatening Canadians’ ability to buy homes in two of the country’s frothiest local markets.

“A worrying side effect of the ongoing housing booms in Vancouver and Toronto continues to be sharp deterioration in affordability,” according to RBC’s latest quarterly Housing Trends and Affordability report.

The report, authored by economists Craig Wright and Robert Hogue, gauges affordability by looking into how much of a household’s pre-tax income is needed to make mortgage payments, pay property taxes, and cover utilities for a home costing the median price.

The bank’s Housing Affordability Measure displays this as a percentage, so an increasing measure represents worsening affordability conditions in a given market and vice versa.

In the fourth quarter of 2015, the aggregate Housing Affordability Measure, which covers all types of housing, apartments for Vancouver was 81.1 per cent, up 3.1 per cent from the previous quarter. At the same time, Toronto’s measure rose 0.5 per cent to 60.6 per cent.

RBC’s measures assume homebuyers would make a 25 per cent downpayment on a property and take out a five-year fixed-rate mortgage with a 25-year amortization period.

The RBC report describes Toronto and Vancouver markets as being “increasingly (dangerously) unaffordable,” but there is some good news for first-time buyers hoping to bust into these real estate markets.

“Fortunately, owning a condo apartment is still within reach for many in the area — and the only realistic option for first-time buyers — although it too has become slightly less affordable in the last two years,” says RBC.

Looking at only condo apartments, Vancouver’s affordability measure falls to 44.1 per cent. Although that’s still 0.7 percentage points higher than the preceding quarter’s condo measure, it is roughly half of what the city’s aggregate has reached.

Meanwhile, it took 109 per cent of the median Vancouver household’s annual income to afford the median-priced single-family detached home in the area during last quarter.

“It has never been so unaffordable to own a single-detached home in the Vancouver area,” said RBC.

In Toronto, the divergence in housing affordability by product type exists as well.

While the measure for a single-family detached home there hit 71.4 per cent by the end of 2015, it sat at 36.7 per cent for condo apartments, unchanged from the previous quarter.

For context, RBC’s national aggregate affordability measure climbed 0.6 percentage points last quarter to 46.7 per cent.

“There are few signs that housing affordability is problematic elsewhere in Canada,” says RBC.

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