Vancouver housing affordability worsens to record, again

Vancouver’s housing affordability worsened again in the first half of the year, marking the largest six-month drop since the early 1990s, RBC says.

The bank said in an economics report that its cost-of-ownership measure for Vancouver rose to a new high of 90.3% of a typical family’s pre-tax income. The affordability reading has continued to break records since 2007 and shows that families with median incomes are increasingly being shut out of the market.

“What has changed in the past year has been the trajectory in this deterioration. It has accelerated in the past year, particularly in the first half of this year,” Robert Hogue, senior economist with RBC, tells Advisor.ca. “It’s been poorly affordable for a long time, but it got a lot worse this year. Could this rate of deterioration be sustained? I would venture a guess to say no.”

Read: Vancouver’s housing market isn’t like pre-crash Florida

RBC’s cost-of-ownership measure for Vancouver rose 6.1% in Q2 and 6.6% in Q1, indicating a quarter-to-quarter deterioration for the Vancouver area that was the worst in 26 years of record-keeping.

Vancouver’s unsustainable trend in housing prices is likely to break down through a sharp cooling or rebalancing in the market, Hogue says.

“We’ve seen a bump up in new listings. If that continues over the next few months, [if] suddenly people start to list their properties at a time that demand is cooling, I think you might see a quick turn in market balance,” he says.

It would not be out of character for Vancouver “to do an about face,” Hogue says, alluding to the city’s housing market downturn in the 1980s.

The report covers the period before B.C. introduced its new tax regime on foreign purchases of homes. Hogue says data coming in September from the Real Estate Board of Greater Vancouver should indicate whether the province’s 15% foreign buyer’s tax is helping to cool the market.

Read: All you need to know about Vancouver’s foreign buyer tax

RBC tracks how much of a typical family’s pre-tax income would be required to cover monthly mortgage interest and principal payments, property taxes and utilities for two categories of housing in 14 urban markets across Canada.

It says Vancouver’s overall numbers were skewed by rising costs for single-family detached houses, while the cost of condos increased modestly over Q2.

RBC says the Toronto area had the country’s second-biggest deterioration in housing affordability during the quarter, with its index of home ownership costs rising by 2.1 percentage points to 60.2% of median pre-tax income.

Toronto’s lower affordability reflected an escalation in single-detached home ownership costs, the report says, as Toronto’s aggregate measure reached the highest since Q3 1990. “By all appearances, rapidly deteriorating affordability had no restraining effect on supercharged demand,” RBC says.

Read: Would more rental units make the GTA more affordable?

RBC says most other major cities saw only a modest decline in housing affordability during the second quarter while the cities of Calgary, Saint John, N.B., and St. John’s, N.L., bucked the trend with a reduced cost of ownership.

Overall, the Canadian cost of ownership was equal to 42.8% of median family pre-tax income in Q2, up 1.2 percentage points since the prior quarter and 2.9 percentage points since Q2 2015.