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[RBC] Market downturn's silver lining: an affordability boost

by Joel Bates | June 28, 2019


According to RBC’s latest Housing Trends and Affordability Report, powered in part by Real Property 

Solutions’ (RPS) Home Price Index, the national home ownership costs have eased for the second-straight quarter keeping the home-ownership dream alive in most markets. Looking at the proportion of families who can afford to own a home, a near majority of families would be able to cover the cost of owning an average home in 9 of the 14 markets that are tracked. Severe affordability issues remain for all but the wealthiest in Vancouver, Toronto and Victoria.

  • RBC’s housing affordability measures eased for the second-straight quarter. The Canada-wide measure dipped by 0.3 percentage points to 51.4% in the first quarter of 2019—still historically high.
  • The improvement was widespread across local markets. Price declines in the West and parts of Atlantic Canada, as well as rising household income helped lower the bar to ownership in most markets.
  • Affordability is still dreadful in Vancouver, Toronto and Victoria. Minor signs of strain are apparent in Montreal and Ottawa but conditions are normal in all other markets we track.
  • We see more room for ownership costs to fall in the near term. Interest rates are no longer set to rise and property values are still under downward pressure in Western Canada.

The RBC Housing Affordability Measure

The RBC Housing Affordability Measure shows the proportion of household income required to service the cost of mortgage payments (principal and interest), property taxes, and utilities based on the average market price for a certain housing type in a given market. A higher number means that buying a home is less affordable.

 Current home prices are sourced from the RPS House Price Index. The affordability measures are based on a 25% down payment, a 25-year mortgage loan at a five-year fixed rate and are estimated on a quarterly bases for 14 major urban markets and a national composite.

What to expect going forward

RBC expects overall home-ownership costs to continue to ease in the near term, albeit incrementally. Interest rates are no longer poised to increase amid heightened global trade uncertainty. And despite signs of a cyclical market bottom emerging this spring, they expect home prices to remain under downward pressure for months to come in many western Canadian markets.

 

For the full RBC Housing Trends and Affordability Report click here and for the methodology and previous reports click here.

For the recent public release of the RPS House Price Index (HPI) click here and for the comprehensive package for lenders click here.


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