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British Columbia's stressed housing affordability should start to improve, says RBC
My Mortgage BC.com note: This is great news for anyone considering entering the housing market in 2008. Give us a call for you mortgage approval.
VANCOUVER, Jan. 24 - Retaining its title as the least affordable
province in Canada in which to purchase a home, British Columbia's housing
affordability is expected to improve modestly in 2008, according to a new
housing report issued today by RBC Economics.
"B.C.'s housing market moved into uncharted territory last year as
affordability deteriorated to its worst levels since we started tracking
conditions back in 1985," said Derek Holt, assistant chief economist, RBC. "We
expect affordability rates to see some modest improvements in 2008 as the
province's housing market reached a peak stress point late last year."
The RBC Affordability measure for British Columbia, which captures the
proportion of pretax household income needed to service the costs of owning a
home in the province, deteriorated across all housing segments as the detached
bungalow moved to 67 per cent, the standard two-story home to 71 per cent, the
standard townhouse to 50 per cent and the standard condo to 36 per cent.
Slower demand, coupled with a downward trend in the sales-to-listing
ratio, has helped ease some of the upward pressures on B.C. home prices. As a
result, price gains have started to level off, dropping from 18 per cent in
2006 to 12 per cent last year. An even softer rate of eight per cent is
expected for 2008.
In Vancouver, affordability deteriorated across all housing segments in
2007, but the pace slowed significantly mid-year. The combination of more
modest house price growth and improved income growth helped restrain the
affordability deterioration. The city's housing market remains robust, with
annual price growth around 12 per cent and the sales-to-listing ratio skewed
towards sellers. However, with an increased supply of homes on the market
helping to moderate price gains, Vancouver should see some affordability
relief later in the year.
The Housing Affordability measure, which RBC has compiled since 1985, is
based on the costs of owning a detached bungalow, a reasonable property
benchmark for the housing market. Alternative housing types are also presented
including a standard two-storey home, a standard townhouse and a standard
condo. The higher the reading, the more costly it is to afford a home. For
example, an Affordability reading of 50 per cent means that homeownership
costs, including mortgage payments, utilities and property taxes, take up 50
per cent of a typical household's monthly pre-tax income.
The report also looked at mortgage carrying costs relative to incomes for
a broader sampling of cities across the country, including Victoria. For these
smaller cities, RBC has used a narrower measure of housing affordability that
only takes mortgage payments relative to income into account.
RBC's Affordability measures for a detached bungalow for Canada's largest
cities are as follows: Vancouver, 72 per cent, Calgary, 46 per cent, Toronto,
46 per cent, Montreal, 37 per cent and Ottawa, 32 per cent.
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Highlights from across Canada:
- Alberta: Many prospective homebuyers were priced out of the market
last year as housing affordability conditions eroded, pushing markets
into unsustainable territory. With a softer influx of migrants, the
housing market is poised for a significant slowdown and improved
affordability.
- Saskatchewan: Housing affordability deteriorated sharply across all
home segments last year as a sudden influx of migrants strained
existing housing capacity. In 2008, housing affordability conditions
are expected to stabilize.
- Manitoba: The province's housing market is still running at full
tilt. Affordability should improve as rising costs start to weigh on
demand and help rebalance the market in 2008.
- Ontario: Income growth is expected to cool amidst toughening economic
conditions in the province. On balance, our affordability forecast in
2008 points to overall improving conditions as mortgage rates drift
lower and price gains moderate even further.
- Quebec: Housing affordability continued to deteriorate last year.
Stable and modest price gains combined with some mortgage rate relief
this year should translate into an overall improvement in
affordability conditions across all four home segments in 2008.
- Atlantic region: Strong house price gains and rising mortgage rates
chipped away at affordability conditions in 2007. In 2008, Atlantic
Canada is expected to move onto a softer growth trajectory as housing
construction activity gears down.
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