Quater 4 2006 Housing Affordability Index – Canada

Canada’s housing affordability conditions deteriorated for the fourth consecutive quarter, according to the latest Housing Affordability Index released by RBC Economics.

The RBC Affordability Index measures 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, with an index of 28 per cent. A standard townhouse is next at 32 per cent followed by a detached bungalow at 40.2 per cent. A standard two-storey home is still the least affordable housing type with an index reading of 45.8 per cent.

New home construction and house resales are expected to soften nationwide in 2007, alongside more reined-in expectations for house price gains. The overall volume of home sales activity should remain high while the majority of home equity gains enjoyed in recent years should also be retained.

In central Canada, affordability is already improving across some housing types despite softening incomes. For example, Toronto prices for two-storey homes and townhomes are flat compared to a year ago while bungalows are up mildly, and condo gains are weakening. However, British Columbia, Alberta, Saskatchewan, and most types of housing in Atlantic Canada, continue to witness deteriorating affordability conditions.

RBC’s Affordability Index for a detached bungalow in Canada’s other largest cities is as follows: Vancouver 70.1 per cent, Toronto 43.8 per cent, Calgary 40.9 per cent, Edmonton 33.4 per cent, Montreal 36 per cent and Ottawa 30.8 per cent.

Also included in the report are housing affordability conditions for a broader sampling of smaller cities across the country. For these smaller cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to incomes into account.

Highlights from across Canada:

-� British Columbia: Housing affordability deteriorated for a fourth
consecutive quarter across all four types of homes driven by a small
decline in average monthly incomes, higher utility bills, and
climbing house prices.
-� Alberta: The third quarter marked the sharpest broad-based quarterly
deterioration in Alberta’s affordability since 1990 with erosion of
12 to 15 per cent for all home segments. Commodity-related spin-off
effects have created ample job opportunities, driven wages up and pushed unemployment to record lows, helping to fuel the residential housing market. However, the market is shifting away from excess demand and towards cooling price pressures.

-Saskatchewan: An increase in house prices, combined with a slight decline in household income this past quarter, led to a marginal deterioration in affordability. However, if rates continue to remain stable and price growth levels off, affordability is expected to improve across all sectors in 2007.

– Manitoba: For the third quarter of 2006, Manitoba saw the strongest overall improvement in affordability for three out of four housing classes. It remains the most affordable province for townhouses and condos even though the townhouse sector witnessed a marginal deterioration.

-Ontario: Dropping off from the growth peaks in house prices and incomes seen several quarters ago, Ontario’s housing market has now cooled to more moderate levels. This cooling has been slow and steady, and should allow for homeowners to retain the bulk of their home equity gains going forward into 2007 and 2008.

-Quebec: Housing affordability erosion was less severe this quarter as income gains and utility relief managed to outpace house price growth. The level of sales is expected to continue to cool, while new home listings are expected to increase and price growth to slow to a
gradual pace across the market.

-Atlantic region: Affordability remained relatively unchanged thanks to house price growth leveling off and cooling household income gains. Following the trend taking place in other parts of the country, the pressures on Atlantic Canada’s housing market showed signs of balancing for the second half of 2006.

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