January 13, 2012 – Canada’s housing affordability has improved modestly in the third quarter of 2011, according to the latest Housing Trends and Affordability Report from RBC Economics. Heightened global economic uncertainty has kept interest rates low, which has been a contributing factor to housing becoming more affordable across the country. The good news for Ontario and Toronto: home-ownership costs for the most part are holding steady.
“Elevated uncertainty relating to the European sovereign-debt crisis and the downside risk for economic growth have contributed to keeping interest rates at low levels,” says Craig Wright, senior vice-president and chief economist, RBC. “The lower interest rate environment – which also includes mortgage rates – has played a part in slightly reducing the costs of owning a home in Canada in the third quarter.”
The RBC housing affordability measure captures the proportion of pre-tax household income that would be needed to service the costs of owning a specified category of home at going market values. For example, an affordability measure of 50 per cent means that home ownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s pre-tax income.
During the third quarter of 2011, measures for the national level fell for all housing categories tracked by RBC (a fall represents an increase in affordability).
Going forward, RBC forecasts that interest rates will remain exceptionally low in Canada until mid-2012 and rise gradually after that.
“We expect to see further slowing in the pace of home price increases next year, as housing demand levels out,” Wright says. “These factors will set the stage for a period of relative stability in affordability trends in Canada.”
In Ontario, the affordability measures remain unchanged in the latest period, with condominiums being the only moving, by a marginal -0.1 percentage points.
For Toronto, affordability measures were little changed in the third quarter – rising marginally by 0.1 percentage points to 52.1 per cent for detached bungalows; falling 0.3 per cent to 61.3 per cent in standard two-storey homes, meaning affordability improved slightly; while there was no change in standard condos, holding steady at 34.3 per cent.