Home affordability dips to 28-year low, 2019 looks no better: RBC

Dated: January 2 2019

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Home affordability dips to 28-year low, 2019 looks no better: RBC

If your New Year’s resolution involves homes becoming more affordable in Canada next year, you might want to pursue something more attainable, like six-pack abs or learning to flawlessly play the violin.

A recent report by RBC Economic Research calls for sustained upward pressure on ownership costs in 2019, thanks to two anticipated Bank of Canada rate hikes and the continued impact of tougher lending rules.

Canada’s central bank held its benchmark interest rate at 1.75 per cent in December. The bank raised to that level in October, the fifth time since the summer of 2017 that it decided to hike. The trend-setting rate directly impacts the rates at which consumers borrow from retail banks. 

“It just keeps getting less affordable to own a home in Canada,” RBC chief economist Craig Wright and senior economist Robert Hogue wrote in the bank’s latest housing trends and affordability outlook. “Those hoping for a meaningful break in 2019 will likely be disappointed.”

RBC’s housing affordability gauge fell to its lowest level since 1990 in the third quarter. The bank said it would have took 53.9 per cent of a typical household income to support the ownership costs of an average home bought during that time, a 1.5 percentage point increase from a year ago. 

“Mortgage rates increased for a fifth straight quarter and accounted for the entire rise in RBC’s
aggregate measure for Canada over that period,” the authors wrote. “The outlook (for 2019) isn’t promising.”

Buying in Canada’s priciest real estate markets would have meant living on a perilously narrow fraction of income for average-earning households. RBC found the share required to cover those costs in the third quarter was an eye-watering 86.9 per cent in Vancouver and 75.3 per cent in Toronto. 

In Vancouver, the income necessary to cover ownership costs, and clear mortgage stress tests, topped $211,000 in the third quarter. The same income figure was $167,000 in Toronto. 

Since the third quarter of 2015, RBC found higher prices added between $27,000 (in Toronto) and $34,000 (in Vancouver) to the amount households have to earn. 

The bank said new tougher stress test requirements for mortgages that require borrowers to quality at a higher rate than they are offered added almost $36,000 to the income needed to buy an average priced Vancouver home ($1.1 million). That figure was $27,000 in Toronto for an average home of $857,000.

“Are only the rich able to buy a home these days? That certainly looks like it in Canada’s most expensive markets,” Wright and Hogue wrote. “Higher interest rates continued to squeeze affordability in the third quarter, pushing it to the worst level in a generation in Canada.”

RBC said many buyers are focusing on lower-cost housing options, fuelling strong demand for condos, which in turn pushes up prices. 

On the (sort of) positive side, Wright and Hogue said they don’t expect affordability to get much worse next year. 

“Rate hikes will keep upward pressure on ownership costs in 2019,” they wrote. “Softening prices in key markets and rising household income increases will provide some offset, however.”

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Steven Axford

Steve Axford grew up in Victoria, BC and has always been active in his community. Steve is a Victoria Cougars Hockey Team alumni as well as a Victoria Shamrocks (intermediate) alumni. During his time....

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