Vancouver – A few more steps in the affordability direction – Greater Vancouver Real Estate Market Update April 2012

Housing affordability in Canada improved in the fourth quarter of 2011 - Vancouver Real Estate Market Update March 2012

Owning a home became more affordable in this country for the second consecutive quarter in the fourth quarter of 2011. The improvement in affordability was modest for the most part but substantial enough to dial back the deterioration that occurred last spring. In the fourth quarter, homebuyers benefited from some softening in home prices—modest declines were registered in several markets—and income gains, which together lightened the load on homeowners budgets of carrying a home financially (based on the market price). Contrary to previous quarters, steady mortgage rates in the closing
months of 2011 were a negligible factor behind the latest movement in affordability.

Affordability of two-storey homes improved the most

At the national level, it was the two-storey home category that showed the biggest improvement in the fourth quarter of 2011. The RBC Housing Affordability Measure for this category fell by 0.8 percentage points to 48.1% (a decline represents an improvement in affordability). The measure for detached bungalows eased by 0.6 percentage points to 42.2% and the measure for condominium apartments by 0.5 percentage points to 28.5%. As was the case in the previous quarter, events in the Vancouver area market did not have a disproportionate effect on national totals. The affordability deterioration that occurred in the first half of last year reflected in large part dramatic increases in homeownership costs in Metro Vancouver. The partial unwinding of these increases since then has been more closely in line with developments elsewhere in the country.

Vancouver continued to reverse some of the earlier sizable deterioration

Nearly all provinces and major urban markets experienced a decline in the weight of homeownership costs in the fourth quarter, led by British Columbia and, more specifically, Vancouver. Only Manitoba (in the two-storey and condo segments), Saskatchewan (two-storey), and Ottawa (condo) bucked the trend and showed some erosion of affordability.

Modest affordability stress at the moment

For the majority of markets across Canada, the level of affordability is now close to where it was a year ago (within 1 or 2 percentage points) and to the long-run average. Consequently, there is generally, at worst, only modest affordability stress being exerted on housing demand in Canada at the moment. Despite the improvement in the latter half of last year, Vancouver continues to be a major exception to this. The proportion of a typical Vancouver household income that would be allocated to cover the costs of owning a home at market prices is still extremely high in this market and no doubt represents a difficult hurdle to clear for local homebuyers. As an indication of this, home resales in the area have moderated below their 10-year average since spring last year, which we largely ascribe to poor affordability. Some affordability challenges are also apparent in Toronto, Montreal, and, to some extent, Ottawa—but they are confined to the two-storey home segment and do not appear to be hampering housing demand in these markets at this point.

Low interest rates to continue to keep housing costs at bay

Despite historically elevated home prices in many parts of Canada, exceptionally low interest rates are keeping housing affordability within a tolerable range. We see few reasons for this to change in 2012. We expect interest rates to remain very low, with the Bank of Canada leaving its overnight rate unchanged until early next year and then raising it only gradually there- after. We also expect that home prices will stabilize— most markets are showing minimal increases with some experiencing modest declines—amid generally balanced market conditions. These factors will set the stage for flat to marginally improving trends in affordability in Canada in 2012.

Provincial overviews

British Columbia — High homeownership costs ease some more

Housing affordability remains poor in British Columbia, but it improved for the second consecutive time in the final quarter of 2011. The provincial market registered the most significant reduction in homeownership costs among the provinces, with the RBC affordability measures falling between 0.7 and 2.5 percentage points. The main contributing factor for the improvement was a further reversal in the earlier substantial increases in home prices— principally in the Vancouver area. Income gains reflecting higher wages and steady job creation also provided help. The easing of homeownership costs in the latter half of 2011 has reduced some of the stress on B.C. homebuyers albeit marginally. We expect that poor affordability will continue to weigh on local housing demand in the period ahead.

Major city markets

Vancouver — A few more steps in the affordability direction

Unaffordability has long been a fact of life in the Vancouver housing market. What raised considerable concerns in the past few years has been the speed at which affordability deteriorated, reaching in the spring of 2011 the worst levels ever recorded in the annals of Canadian real estate. While a host of factors (many of them unique to Vancouver) conspired to catapult residential property values in the area, the market was at increasing risks of losing touch with local reality. Such risks have begun to recede a bit in the past two quarters, however. Home prices have moderated since reaching all-time highs early last year, and this has helped to lower homeownership costs in the latter half of 2011. In the fourth quarter, the RBC affordability measures dropped quite substantially for all housing types (by between 2.0 and 4.6 percentage points). Nevertheless, owning a home at current prices would still take up a huge chunk (86% in the case of a bungalow) of a typical household budget. The ownership bar thus remains extremely high in the Vancouver area market, and this will continue to drive local buyers away.

If you have any real estate questions or if you are thinking of buying or selling your home, please contact James Louie Chung, Metro Vancouver REALTOR® at james@hellovancity.com or call / text ( 6 0 4 ) 7 1 9 — 6 3 2 8 today!

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Download RBC Housing affordability in Canada improved in the fourth quarter of 2011 report

James Chung

Founder & Editor in Chief of Hello Vancity magazine. Email james@hellovancity.com

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