Canada’s largest bank believes real estate affordability will continue to deteriorate. RBC Economicsupdated their Affordability Index for Q3 2018. The index, which shows how much a household would pay for a mortgage, printed one of the worst levels in history. Analysts from the bank expect affordability to get worse in 2019, as interest rates rise. However, they did mention the decline in affordability will be mitigated by falling prices.
RBC Affordability Index
The RBC Affordability Index is one of the many indexes that compare how much it costs to own a home. The index presents the ratio of income median households need to use to buy a house today. They use a five year fixed rate, assuming a 25 year amortization, and a 25% down payment. There’s a few notes you should also remember that help us understand why this data is useful.
A lot of people look at this number and think, “OMG – Canadians are paying how much of their income?!” No, the vast majority of Canadians bought before the spike in prices. This means the lion’s share of households are minimally impacted by a rise in servicing costs. Heck, most banks wouldn’t lend someone the money if they needed to spend more than 50% of their income on debt service.
Instead, the takeaway is in regards to liquidity. The higher the servicing costs, the smaller the pool of qualified buyers. Illiquid assets tend to experience wild swings in prices, not all positive. This is actually pretty obvious if you look at the index. The peaks aren’t elevated for more than 3 years, without a correction and recession.
Canadian Real Estate Is The Least Affordable Since 1990
The affordability index for Canadian real estate held its level for a second quarter. A median household in Canada needed 53.9% of their income in Q3 2018, the same as the previous quarter. That number represents a 3.05% increase compared to the same quarter last year. While high, we’re still under the peak level of unaffordability established in Q2 1990.
Canadian Real Estate Affordability (RBC Index)
The percent of income required by a median household to service mortgage debt on a conventional mortgage across Canada.
| Quarter | Aggregate | Detached | Condo | Recession |
|---|---|---|---|---|
| 1985 Q1 | 41.5 | 42.4 | 33.2 | |
| 1985 Q2 | 39.3 | 40.3 | 31.5 | |
| 1985 Q3 | 38.3 | 39.2 | 30.8 | |
| 1985 Q4 | 38.2 | 39.1 | 30.9 | |
| 1986 Q1 | 38.5 | 39.4 | 31.1 | |
| 1986 Q2 | 36.7 | 37.6 | 30 | |
| 1986 Q3 | 37.9 | 38.9 | 30.8 | |
| 1986 Q4 | 38.7 | 39.7 | 31.5 | |
| 1987 Q1 | 37.5 | 38.5 | 30.9 | |
| 1987 Q2 | 40.7 | 41.8 | 33.9 | |
| 1987 Q3 | 42.6 | 43.7 | 35.6 | |
| 1987 Q4 | 42.8 | 44 | 36 | |
| 1988 Q1 | 42.3 | 43.5 | 35.8 | |
| 1988 Q2 | 42.5 | 43.6 | 36.3 | |
| 1988 Q3 | 45.1 | 46.4 | 38.3 | |
| 1988 Q4 | 45.7 | 47.1 | 39 | |
| 1989 Q1 | 46.9 | 48.3 | 40.5 | |
| 1989 Q2 | 47.5 | 49 | 40.9 | |
| 1989 Q3 | 45.7 | 47.1 | 39.9 | |
| 1989 Q4 | 46.8 | 48.3 | 40.8 | |
| 1990 Q1 | 50.3 | 51.9 | 44.6 | |
| 1990 Q2 | 56 | 57.9 | 49.8 | |
| 1990 Q3 | 52.6 | 54.3 | 46.5 | |
| 1990 Q4 | 50.1 | 51.8 | 43.9 | |
| 1991 Q1 | 45.6 | 47.3 | 39.1 | 70 |
| 1991 Q2 | 45 | 46.7 | 38.7 | 70 |
| 1991 Q3 | 45.9 | 47.7 | 39.4 | 70 |
| 1991 Q4 | 43.2 | 44.9 | 37.1 | 70 |
| 1992 Q1 | 42.4 | 44.3 | 36.4 | |
| 1992 Q2 | 42.3 | 44.2 | 36.4 | |
| 1992 Q3 | 39 | 40.8 | 33.3 | |
| 1992 Q4 | 41.3 | 43.2 | 35.2 | |
| 1993 Q1 | 41.3 | 43.3 | 35.3 | |
| 1993 Q2 | 40.8 | 42.8 | 34.7 | |
| 1993 Q3 | 40.3 | 42.3 | 34.3 | |
| 1993 Q4 | 38.4 | 40.5 | 32.4 | |
| 1994 Q1 | 37.8 | 39.9 | 31.7 | |
| 1994 Q2 | 43.6 | 45.9 | 36.5 | |
| 1994 Q3 | 44.7 | 47.1 | 37.1 | |
| 1994 Q4 | 43.9 | 46.4 | 36.5 | |
| 1995 Q1 | 44 | 46.4 | 36.5 | |
| 1995 Q2 | 39.8 | 42.1 | 32.9 | |
| 1995 Q3 | 39.2 | 41.5 | 32.1 | |
| 1995 Q4 | 38.7 | 41 | 31.6 | |
| 1996 Q1 | 37.4 | 39.6 | 30.4 | |
| 1996 Q2 | 38.5 | 40.9 | 31.2 | |
| 1996 Q3 | 37.6 | 39.9 | 30.5 | |
| 1996 Q4 | 34.9 | 37.2 | 28.2 | |
| 1997 Q1 | 35.4 | 37.7 | 28.6 | |
| 1997 Q2 | 36.1 | 38.4 | 29.2 | |
| 1997 Q3 | 35.5 | 37.7 | 28.5 | |
| 1997 Q4 | 35.1 | 37.4 | 28.3 | |
| 1998 Q1 | 35 | 37.3 | 28.3 | |
| 1998 Q2 | 34.9 | 37.2 | 28.1 | |
| 1998 Q3 | 35.4 | 37.7 | 28.5 | |
| 1998 Q4 | 34.6 | 36.9 | 27.9 | |
| 1999 Q1 | 34.7 | 36.9 | 27.9 | |
| 1999 Q2 | 35.1 | 37.4 | 28.3 | |
| 1999 Q3 | 36.2 | 38.6 | 28.8 | |
| 1999 Q4 | 37.5 | 39.9 | 29.8 | |
| 2000 Q1 | 38.5 | 41 | 31 | |
| 2000 Q2 | 38.4 | 40.8 | 30.5 | |
| 2000 Q3 | 37.8 | 40.2 | 30.3 | |
| 2000 Q4 | 37.7 | 40.1 | 29.8 | |
| 2001 Q1 | 36.4 | 38.7 | 29 | |
| 2001 Q2 | 36.4 | 38.6 | 29 | |
| 2001 Q3 | 36.2 | 38.4 | 29 | |
| 2001 Q4 | 35 | 37.4 | 27.9 | |
| 2002 Q1 | 36.3 | 38.7 | 29.2 | |
| 2002 Q2 | 37.1 | 39.6 | 29.9 | |
| 2002 Q3 | 36 | 38.5 | 29 | |
| 2002 Q4 | 36.4 | 38.9 | 29.3 | |
| 2003 Q1 | 36.5 | 39 | 29.9 | |
| 2003 Q2 | 36 | 38.6 | 29.4 | |
| 2003 Q3 | 36.8 | 39.4 | 30 | |
| 2003 Q4 | 37.7 | 40.5 | 30.8 | |
| 2004 Q1 | 36.5 | 39.2 | 29.9 | |
| 2004 Q2 | 38.6 | 41.5 | 31.7 | |
| 2004 Q3 | 38.9 | 41.8 | 32.1 | |
| 2004 Q4 | 38.6 | 41.5 | 32 | |
| 2005 Q1 | 38.6 | 41.6 | 32 | |
| 2005 Q2 | 38.4 | 41.3 | 31.8 | |
| 2005 Q3 | 38.8 | 41.6 | 31.9 | |
| 2005 Q4 | 40.2 | 43.2 | 32.9 | |
| 2006 Q1 | 41.2 | 44.3 | 33.5 | |
| 2006 Q2 | 42.8 | 46 | 34.9 | |
| 2006 Q3 | 43.9 | 47.4 | 35.7 | |
| 2006 Q4 | 43.8 | 47.3 | 35.6 | |
| 2007 Q1 | 43.8 | 47.3 | 35.6 | |
| 2007 Q2 | 45.4 | 49 | 36.9 | |
| 2007 Q3 | 47.3 | 51.1 | 38.6 | |
| 2007 Q4 | 48.8 | 52.7 | 40.1 | |
| 2008 Q1 | 48.3 | 52.1 | 39.7 | |
| 2008 Q2 | 46.5 | 50.2 | 38.1 | |
| 2008 Q3 | 46.4 | 50 | 38 | |
| 2008 Q4 | 47.2 | 50.8 | 38.7 | |
| 2009 Q1 | 42.3 | 45.6 | 34.8 | 70 |
| 2009 Q2 | 41 | 44.1 | 33.6 | 70 |
| 2009 Q3 | 42.6 | 45.9 | 35 | 70 |
| 2009 Q4 | 43.4 | 46.8 | 35.8 | 70 |
| 2010 Q1 | 43.9 | 47.4 | 36.1 | |
| 2010 Q2 | 46.1 | 49.9 | 37.7 | |
| 2010 Q3 | 44.6 | 48.4 | 36.2 | |
| 2010 Q4 | 43.8 | 47.6 | 35.4 | |
| 2011 Q1 | 43.9 | 47.7 | 35.4 | |
| 2011 Q2 | 44.9 | 48.8 | 36.1 | |
| 2011 Q3 | 44.7 | 48.6 | 35.7 | |
| 2011 Q4 | 44.2 | 48.1 | 35.2 | |
| 2012 Q1 | 43.6 | 47.4 | 34.7 | |
| 2012 Q2 | 43.6 | 47.3 | 34.5 | |
| 2012 Q3 | 43.8 | 47.6 | 34.4 | |
| 2012 Q4 | 43.6 | 47.6 | 34.2 | |
| 2013 Q1 | 43.3 | 47.2 | 33.9 | |
| 2013 Q2 | 43.2 | 47.2 | 33.8 | |
| 2013 Q3 | 44.2 | 48.2 | 34.5 | |
| 2013 Q4 | 44.5 | 48.6 | 34.6 | |
| 2014 Q1 | 43.5 | 47.6 | 33.7 | |
| 2014 Q2 | 41.9 | 45.8 | 32.3 | |
| 2014 Q3 | 42.4 | 46.2 | 32.6 | |
| 2014 Q4 | 43 | 46.9 | 33 | |
| 2015 Q1 | 43.3 | 47.3 | 33.1 | |
| 2015 Q2 | 43.2 | 47.2 | 32.8 | |
| 2015 Q3 | 43.8 | 48 | 33.1 | |
| 2015 Q4 | 44.7 | 49 | 33.6 | |
| 2016 Q1 | 45.6 | 50.2 | 34 | |
| 2016 Q2 | 46.8 | 51.6 | 34.4 |
Steven AxfordSteve is a award winning Realtor in Victoria BC, with his listings selling faster and for top dollar! Growing up in Victoria, BC and has always been active in his community. Steve is a Victoria Cougar.... Latest Blog PostsThe British Columbia Real Estate Association (BCREA) reports that a total of 5,572 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in July 2022, a decrease There’s no doubt about the fact that the housing market is slowing from the frenzy we saw over the past two years. But what does that mean for you if you’re thinking of selling The latest news has been focused on rising interest rates, surging inflation, and economic uncertainty with suggestions that the Canadian economy could be tripped into recession.With all this The BC Home Owner Protection Act requires that all newly built homes (including strata properties) or buildings that have been substantially reconstructed be covered by third-party eXp Realty - Victoria (BC)Additional: 1321 Blanshard StVictoria, BC Should you require assistance in navigating our website or searching for real estate, please contact our offices at 250-858-8947.
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