Home affordability improves: RBC

For the first time since 2009, housing affordability has improved in Canada, according to a report from RBC. In the third quarter of 2010, mortgage rates dropped and home prices declined.

“The improvement in affordability during the third quarter has relieved some of the stress that had been mounting in Canada’s housing market over the past year,” said Robert Hogue, senior economist, RBC. “After appreciating rapidly during the strong rebound in resale activity last year and early this year, national home prices recently came off the burner and retreated modestly as market conditions cooled considerably through the spring and summer.”

That being said, home prices themselves were still 5.8 to 6.8% higher year-over-year at the national level. Conventional fixed mortgage rates came down in the third quarter, with the five-year posted rate falling more than 0.5% to an average of 5.52%, reversing the rise in the second quarter.

There is of course, provincial variation.

British Columbia: Lower home prices and declining mortgage rates brought the B.C. housing market some welcomed reprieve in the third quarter from the significant deterioration in affordability recorded since the middle of 2009. The RBC Housing Affordability Measures for B.C. dropped between 1.8 and 5.0 percentage points, representing the largest declines since the first quarter of 2009; however, all remained significantly above long-term averages.

Alberta: Despite recording substantial affordability improvements since early 2008, housing demand in Alberta is still a shadow of its former self from just a few years ago and there are few signs that it is picking up meaningfully. The RBC Measures eased between 0.8 and 1.8 percentage points, more than reversing modest rises in the second quarter.

Saskatchewan: Saskatchewan home resales rebounded since August and reversed most of their slide in the first half of this year; however, the earlier softening of activity had a lingering effect on home prices which fell across all housing types relative to the second quarter. RBC’s affordability measure dropped between 1.8 and 2.2 percentage points.

Manitoba: Manitoba’s housing resales picked up smartly in September and October, swiftly turning the page on a particularly weak summer period, with provincial homebuyers taking advantage of improving affordability. RBC’s measure fell between 0.9 and 2.3 percentage points, reversing one-half to three-quarters of the increase that occurred since the spring of 2009.

Ontario: After four consecutive quarterly increases, the cost of homeownership declined in Ontario in the third quarter thanks to lower mortgage rates and some softening in property values. RBC’s measure fell between 1.3 and 2.4 percentage points, fully reversing the increase in the second quarter.

Quebec: The Quebec housing market is making its way towards more stable activity levels after plummeting to six-year lows at the end of 2008 and then surging to all-time highs at the start of 2010. Supporting this trend in the near term is an improvement in affordability in the third quarter. Following four consecutive increases, the RBC measures for the province fell 1.4 to 1.8 percentage points depending on the housing type.

Atlantic Canada: The East Coast housing market picked up some steam early this fall following a marked cooling in activity in the spring when resales fell back to the lows reached at the end of 2008. Modest price declines and a drop in mortgage rates contributed to lower third quarter homeownership costs with RBC’s Measures moving down between 1.0 and 1.5 percentage points in the third quarter and returning roughly to the levels experienced in mid- to late-2009.

The RBC Housing Affordability Measure, on which the RBC outlook is based, captures the proportion of pre-tax household income needed to service the costs of owning a specified category of home. During the third quarter of 2010, measures at the national level fell between 1.4 and 2.5 percentage points across the housing types tracked by RBC.

The full RBC Housing Trends and Affordability report is available online here.

(11/29/10)