In a previous article, Robert Hogue of RBC Economics outlined the rapid deterioration of housing affordability in Canada since the Bank of Canada’s aggressive escalation of its overnight rate in 2022..The article focused on the pre-tax household income required to qualify for a mortgage in cities across the country. Today we look at the RBC aggregate affordability measure (the percentage of income required to cover housing costs: mortgage payments, property taxes, and utilities) based on the aggregate benchmark price in selected cities. The aggregate price includes all types of housing to determine the overall affordability in each city, based on the third quarter of 2022..Following are Hogue’s comments; some have been edited for brevity..Victoria: Exceptionally high hurdle to clear.RBC’s aggregate affordability measure soared to an eye-watering 71.7%. The deterioration in affordability over the past year (-18.7%) put buyers in an extremely difficult situation. Sales recently reached a 10-year low and demand-supply conditions significantly loosened as a result. Prices are correcting. Further price declines are expected in the near term..Vancouver area — setting a new (grim) record as Canada’s least affordable market got worse..The already gigantic ownership costs hit another record high (95.8%). Owning a home has never been so unaffordable anywhere in Canada and probably most places around the world. Price corrections to date have done little to ease this crisis. Further declines are needed to reignite buyers' enthusiasm. Expect activity to stay depressed while earlier price gains are rolled back..Calgary — buyers still able to navigate.The impact of higher rates has been less severe than in other major markets. Housing affordability is departing from historical norms with RBC’s aggregate measure, 41.6%, surpassing its long-run average of 38.7%. The market entered the pandemic from a very favourable affordability position. Buyers continue to respond accordingly, sustaining solid demand, and keeping activity brisk and prices firm. Expect little change in the near term..Edmonton — ownership costs no more of a burden than usual.Buying a home is more affordable than usual in Edmonton, with the aggregate measure, 31.2%, slightly below its long-term average of 32.4%. Edmonton is the only market we track where that was the case in the third quarter. The positive picture didn’t fully protect against the broad market cooling we’ve seen across the country but likely helped home resales stay well above pre-pandemic levels. A recent string of price declines, if sustained, could lead to some improvement in affordability in the period ahead..Saskatoon — holding up well.Spiking ownership costs are taking a toll on buyers. Still, with sky-high levels as a starting point, the market isn’t weak by any measure, with resales remaining above pre-pandemic levels and, until very recently, prices have held up better than in most markets. RBC’s aggregate measure rose in each of the last six quarters to 32.6%..Regina — modest prices sustain solid demand.The loss of affordability hasn’t restrained the flow of transactions yet. It’s still near all-time highs. That’s because, perhaps, the level of affordability remains favourable for buyers. RBC’s aggregate measure for Regina is 28.3%, the lowest among the markets we track in Western Canada. Regina’s modestly priced properties make ownership costs less sensitive to interest rates, which should keep activity humming in the near term..Winnipeg — loss of affordability dims house hunters' verve.Rising ownership costs are keeping buyers out of the market. Home resales have dipped slightly below levels in the latter half of 2019 after setting record highs earlier in the pandemic. RBC’s aggregate measure is 33.4%, the highest share in 33 years. Buyers are now bidding prices lower. Expect depreciation to continue in the near term.Toronto area — crisis deepens.The GTA has seen massive increases in already steep mortgage payments, thrusting RBC’s aggregate affordability to an astounding 85.2%, a new all-time high. Sales sank more than 45% since February to the lowest levels in 13 years. Prices declined sequentially for nine consecutive months. We think a further rollback of earlier outsized price gains is in the cards, and in fact, we see it necessary to stabilize the market..Montreal area — challenging times.Only briefly in 1990 has RBC’s aggregate measure surpassed its current reading of 51.9%, unsurprisingly deflating buyers with the pace of decline picking up materially since summer. Sales slumped to 14-year lows, but price depreciation remained subdued to date. We think this trend will persist in the near term..Halifax — among the least affordable markets.Halifax went from one of the more affordable markets in Canada to one of the least, with prices increasing close to 40% year over year. RBC’s aggregate measure jumped an astounding 12.8% to 44.2% and sales sank 28% since spring. Benchmark prices peaked this summer, and we expect them to trend lower in the period ahead
In a previous article, Robert Hogue of RBC Economics outlined the rapid deterioration of housing affordability in Canada since the Bank of Canada’s aggressive escalation of its overnight rate in 2022..The article focused on the pre-tax household income required to qualify for a mortgage in cities across the country. Today we look at the RBC aggregate affordability measure (the percentage of income required to cover housing costs: mortgage payments, property taxes, and utilities) based on the aggregate benchmark price in selected cities. The aggregate price includes all types of housing to determine the overall affordability in each city, based on the third quarter of 2022..Following are Hogue’s comments; some have been edited for brevity..Victoria: Exceptionally high hurdle to clear.RBC’s aggregate affordability measure soared to an eye-watering 71.7%. The deterioration in affordability over the past year (-18.7%) put buyers in an extremely difficult situation. Sales recently reached a 10-year low and demand-supply conditions significantly loosened as a result. Prices are correcting. Further price declines are expected in the near term..Vancouver area — setting a new (grim) record as Canada’s least affordable market got worse..The already gigantic ownership costs hit another record high (95.8%). Owning a home has never been so unaffordable anywhere in Canada and probably most places around the world. Price corrections to date have done little to ease this crisis. Further declines are needed to reignite buyers' enthusiasm. Expect activity to stay depressed while earlier price gains are rolled back..Calgary — buyers still able to navigate.The impact of higher rates has been less severe than in other major markets. Housing affordability is departing from historical norms with RBC’s aggregate measure, 41.6%, surpassing its long-run average of 38.7%. The market entered the pandemic from a very favourable affordability position. Buyers continue to respond accordingly, sustaining solid demand, and keeping activity brisk and prices firm. Expect little change in the near term..Edmonton — ownership costs no more of a burden than usual.Buying a home is more affordable than usual in Edmonton, with the aggregate measure, 31.2%, slightly below its long-term average of 32.4%. Edmonton is the only market we track where that was the case in the third quarter. The positive picture didn’t fully protect against the broad market cooling we’ve seen across the country but likely helped home resales stay well above pre-pandemic levels. A recent string of price declines, if sustained, could lead to some improvement in affordability in the period ahead..Saskatoon — holding up well.Spiking ownership costs are taking a toll on buyers. Still, with sky-high levels as a starting point, the market isn’t weak by any measure, with resales remaining above pre-pandemic levels and, until very recently, prices have held up better than in most markets. RBC’s aggregate measure rose in each of the last six quarters to 32.6%..Regina — modest prices sustain solid demand.The loss of affordability hasn’t restrained the flow of transactions yet. It’s still near all-time highs. That’s because, perhaps, the level of affordability remains favourable for buyers. RBC’s aggregate measure for Regina is 28.3%, the lowest among the markets we track in Western Canada. Regina’s modestly priced properties make ownership costs less sensitive to interest rates, which should keep activity humming in the near term..Winnipeg — loss of affordability dims house hunters' verve.Rising ownership costs are keeping buyers out of the market. Home resales have dipped slightly below levels in the latter half of 2019 after setting record highs earlier in the pandemic. RBC’s aggregate measure is 33.4%, the highest share in 33 years. Buyers are now bidding prices lower. Expect depreciation to continue in the near term.Toronto area — crisis deepens.The GTA has seen massive increases in already steep mortgage payments, thrusting RBC’s aggregate affordability to an astounding 85.2%, a new all-time high. Sales sank more than 45% since February to the lowest levels in 13 years. Prices declined sequentially for nine consecutive months. We think a further rollback of earlier outsized price gains is in the cards, and in fact, we see it necessary to stabilize the market..Montreal area — challenging times.Only briefly in 1990 has RBC’s aggregate measure surpassed its current reading of 51.9%, unsurprisingly deflating buyers with the pace of decline picking up materially since summer. Sales slumped to 14-year lows, but price depreciation remained subdued to date. We think this trend will persist in the near term..Halifax — among the least affordable markets.Halifax went from one of the more affordable markets in Canada to one of the least, with prices increasing close to 40% year over year. RBC’s aggregate measure jumped an astounding 12.8% to 44.2% and sales sank 28% since spring. Benchmark prices peaked this summer, and we expect them to trend lower in the period ahead
