National Housing Affordability Improves (Minus Toronto and Vancouver)
While national housing affordability may be improving overall, the situation in the country’s most expensive housing markets remains “dreadful.”
That’s according to RBC’s latest housing affordability report. Despite continued unaffordability in Toronto, Vancouver and Victoria, the report showed an improvement nationally for the second straight quarter.
“Policy-engineered market downturns have succeeded at reversing some of the earlier massive affordability losses in Vancouver and stabilizing the situation in Toronto—though neither market is close to levels that ordinary Canadian households can afford,” said the report’s authors, Chief Economist Craig Wright and Senior Economist Robert Hogue.
“Affordability is still dreadful in Vancouver, Toronto and Victoria (and) minor signs of strain are apparent in Montreal and Ottawa.”
Overall, RBC’s aggregate affordability measure fell 0.3 percentage points to 51.4% in Q1. With further Bank of Canada interest rate hikes now off the table for the foreseeable future, the report’s authors expect overall affordability to continue to improve in the coming quarters.
Here’s a look at the situation in some of the key markets tracked in this report:
While Toronto homebuyers had a bit of a break over the last couple of years thanks to slowing price gains, the report found just one in five families earn enough to afford a home in the city (one in seven if OSFI’s mortgage stress test is factored in).
Affordability is likely to erode further given the latest data from the Toronto Real Estate Board showing GTA home sales were up 10.4% in June while the average price rose 3% to $832,703.
“The bar to home ownership pretty much remains as high as ever,” the report reads. “And with prices back on a slight upward trajectory, it’s unlikely to come down much, or at all, in the near term.”
While Vancouver affordability is still at a crisis level, it did record an improvement in the quarter.
RBC’s aggregate measure for Vancouver eased 1.9 percentage points to 82% in Q1. That’s down 5.1 percentage points compared to last year. Still, just one in eight families earn an income needed to manage ownership costs in the Greater Vancouver Area (or one in 13 when the stress test is factored in).
“Affordability remains in crisis and this will continue to weigh heavily on homebuyer demand for the foreseeable future,” says RBC.
Homebuyers in Vancouver may see affordability continue to improve given the Real Estate Board of Greater Vancouver’s latest figures for June showing the city’s benchmark house price (which includes condos and detached homes) fell to $998,700. It’s the first time the price has been below the threshold of $1 million since 2017.
Detached home prices remain much higher at an average of $1.424 million.
While Montreal remains much more affordable compared to Toronto and Vancouver, it did see home resales for 2019 year-to-date rise 7% compared to a year ago. This led to an increase in RBC’s aggregate affordability measure to 44.3%—its highest level in nearly a decade—and up from its long-run average of 38.6%.
“The housing market’s upswing is very much alive in Montreal despite ownership costs stretching the limits of many buyers,” reads the report. “A vibrant economy, strong labour market and increasing international interest continue to instill confidence in the market.”
The story is very different in Saint John, NB, which continues to be the most affordable market of those tracked by RBC.
The situation improved further in the first quarter as the aggregate measure of affordability fell 0.4 percentage points to 25.9%. This means that more than half (56%) of Saint John families earn enough to manage ownership costs—the highest percentage in the country.
“While excellent affordability contributed significantly to an upswing in resale activity over the past four years, solid job creation and a near decade-low unemployment rate no doubt provided a bigger boost this year,” the authors wrote, noting home resales were up more than 9% in the first half of 2019. “If anything, demand-supply conditions are a bit tight, which should keep prices on a modestly upward track.”