- Bank of Canada interest
rate hikes will continue to apply upward pressure on ownership
costs in 2019
- RBC's affordability measure in the third quarter reached its
worst level in Canada since
1990
- Affordability at crisis levels in Vancouver and Toronto, but eroded most in Montreal during Q3
TORONTO, Dec. 21, 2018 /CNW/ - The coming year is unlikely
to provide much housing affordability relief in Canada, according to the latest Housing Trends
and Affordability Report issued today by RBC
Economics.
The Bank of Canada is expected
to hike interest rates further in 2019, which will sustain upward
pressure on ownership costs. However, housing prices in several key
markets should soften somewhat and household income should continue
to rise, providing some offset.
RBC's aggregate housing affordability measure increased slightly
to 53.9 per cent in the third quarter of 2018, which is up 1.5
percentage points from a year ago. The housing affordability
measure is calculated as a share of household income. A higher
number means that buying a home is less affordable.
Higher interest rates accounted for the entire increase in RBC's
measure in the past. Add the mortgage stress test on top of this
and the picture gets even more daunting for many Canadian
buyers.
This year's stress test, which required mortgage borrowers to
qualify at a significantly higher interest rate than their offered
rate, meant that several thousands of dollars more in income is now
needed to buy a home in every market across the country.
"Buyers in Vancouver,
Toronto and Victoria needed between two and three times
the median household income to qualify to purchase an average home
in the third quarter," said Craig
Wright, Senior Vice-President and Chief Economist, RBC.
"Poor affordability has made it nearly impossible for some buyers -
often young households - to enter these housing markets."
Even more troublesome is the extent to which the qualifying
income increased over the past three years. For example, the income
necessary to qualify to buy an average home in Vancouver surged by $84,000 (66 per cent). Price appreciation and the
stress test accounted for the bulk of this.
The considerable loss in housing affordability in Canada's priciest cities in recent years has
prompted many buyers to shift their focus to lower-priced housing
options, including condos. The increased demand for condos in turn
has fueled prices for these units. RBC's affordability measure for
condos in Canada increased by 3.6
percentage points in the past year, compared to only 1.2 percentage
points for the single-family detached measure.
About RBC
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SOURCE RBC