Ontario Housing Affordability Levels Off

Ontario’s housing affordability levels off, says RBC Economics

According to a new-housing report recently issued by RBC Economics, Ontario’s housing market appears to have stabilized. “Healthy income gains were offset by modest house-price growth, creating very little movement in affordability across all housing classes,” says Derek Holt, Assistant Chief Economist, RBC. “Annual house-price gains continue to bounce around the three to five per cent range, as Ontario’s housing market levels off.”RBC’s Housing Affordability report for Ontario, which measures the proportion of pre-tax household income needed to service the costs of owning a home, stood at 35. 5 per cent for the benchmark detached bungalow, 41 per cent for the standard two-storey home, 29 per cent for the standard townhouse and 27 per cent for the standard condo. The condo market is the most active home segment with prices still growing in the six to 10 per cent range, spurred on by the hot Toronto market. Still seen as the most viable option for first-time homebuyers, especially in Toronto, the demand for condos will likely remain elevated for the rest of the year. New construction activity has started to slow as the market adjusts to softer demand conditions and a weaker economy. Toronto’s housing market remains one of the softest among big Canadian cities. Affordability conditions remain relatively stable at 43 per cent as the sales-to-listings ratio is balanced and annual price growth is in low single-digits. Reacting to softer conditions, the residential construction market is weakening as housing starts cooled 42 per cent in the first quarter and permits dropped 10 per cent. Condos continue to lead the Toronto market as price growth was up seven per cent compared to a year ago. “Rising mortgage rates are expected to take a bite out of Toronto’s affordability later this year, but modest price growth should help offset some of that impact,” says Holt. According to the report, Ottawa’s housing market has regained some momentum after softening through much of 2006. Like Toronto, condos also remain the most affordable option for homebuyers, requiring approximately 22 per cent of household income. Affordability levelled off as healthy income gains kept pace with rising house prices. New-home construction has tapered off and is expected to continue to decline over the rest of 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 home ownership 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 smaller cities across the province, including London, Kitchener, Windsor, St. Catharines, Brantford and North Bay. Many of Ontario’s smaller cities witnessed a broadly based fourth quarter affordability improvement. 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 measure for a detached bungalow for Canada’s largest cities is as follows:
Vancouver 68 per cent
Calgary, 40 per cent
Toronto, 43 per cent
Montreal, 35. 4 per cent
Ottawa 30. 5, per cent.

British Columbia: Solid income gains outstripped softer house price growth to make way for another slight improvement in housing affordability for two-storey homes. The improvement is welcome relief or many prospective homeowners attempting to tap into the already-elevated property market. Affordability of the remaining three home segments deteriorated as prices continued to move higher. The full RBC Housing Affordability report is available online at www.rbc.com/economics/market/pdf/house.pdf




Source: The Condo Guide Magazine