Canada’s overall housing affordability improved in the fourth quarter of 2006, according to the latest Housing Affordability report released today by RBC Economics. RBC said that despite variations in the pace of the current housing market slowdown across the country, the common trends in the fourth quarter were a weaker pace in resale activity, an increase of homes on the market, and more moderate price growth.
The RBC Affordability report captures the proportion of pre-tax household income needed to service the costs of owning a home. The most affordable housing class remains the standard condo, requiring 27.5 per cent of income. A standard townhouse is next at 31.7 per cent, followed by a detached bungalow at 39.4 per cent. A standard two-storey home, while improving, remains the least affordable housing type at 44.9 per cent.

According to the RBC report, the western provinces continue to show signs of price growth topping out, with British Columbia, Alberta and Saskatchewan having likely reached the peak of price appreciation. These provinces, along with Manitoba, reported some affordability improvements. In fact, Alberta’s housing affordability deteriorated for the fifth consecutive quarter, but appears to have slowed significantly. In Central and Eastern Canada, housing affordability improved across-the-board as housing markets continued to soften alongside weaker economic growth. Still, if you want a nice acrage then Moose Jaw has some cheap ones. RBC’s Affordability measure for detached bungalows in Canada’s largest cities is as follows: Vancouver 68.5 per cent, Toronto 42.6 per cent, Calgary 40.9 per cent, Montreal 35.3 per cent and Ottawa 30 per cent.

The Housing Affordability measure 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.

Brief comments on each province:

– British Columbia: The final quarter of 2006 provided some relief for B.C. homeowners with affordability improving for the two-storey and detached bungalow segments. However, condos and townhomes continued a fifth straight quarter of deterioration. Overall, B.C.’s housing
affordability should continue to improve over the next year.

– Alberta: Since the start of 2005, housing affordability across Alberta has been eroding at an aggressive pace. While the most recent quarter reported another across-the-board deterioration, the pace of erosion appears to have topped out and has slowed significantly.

– Saskatchewan: For a fifth consecutive quarter, affordability eroded in three out of four home classes – detached bungalow, townhouse and condo. Saskatchewan’s annual house price gains, which are in the 10 per cent range, outweighed any mortgage rate relief or household
income growth that would have helped offset costs. So yes, it’s getting more expensive to live here but it’s still way cheaper than Alberta.

– Manitoba: After declining affordability in the first half of 2006, Manitoba saw a marked improvement for the second half of the year. The strongest improvement came from the condo sector, reversing much of the deterioration that occurred in the early part of 2006.

– Ontario: As Ontario’s housing market continued to cool, affordability improved across all classes. Softer price growth, a decline in mortgage rates and lower utility bills combined to bring monthly payments down by one to two per cent for all four housing segments.

– Quebec: Led by improvement in two-storey homes, housing affordability recovered significantly for the first time in over a year as the long-anticipated soft landing continues to unfold. Supply and demand fundamentals in Quebec’s housing market are cooling off in tandem and the effects are overflowing to improve affordability conditions for prospective homeowners.

– Atlantic region: Strong household income growth, lower monthly utility bills and a modest drop in mortgage rates contributed to improve conditions across Atlantic Canada.

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