Local housing market still very affordable, while tensions exist in Toronto, Vancouver

Soaring housing prices in Vancouver and Toronto continued to squeeze housing affordability at the national level in the second quarter, even though affordability was close to historical norms in most other Canadian markets, according to the Housing Trends and Affordability Report released by RBC Economics Research.

RBC’s aggregate measure for housing affordability in Canada rose by 1.2 percentage points in the second quarter to 42.8 per cent, the biggest quarterly increase in six years. Single-detached homes led the climb (up 1.4 percentage points to 47.8 per cent), followed by condo apartments (up 0.4 percentage points to 34.4 per cent).

Housing affordability is calculated as a share of a household’s pre-tax income that’s required to cover monthly mortgage interest and principal payments, property taxes and utilities. A higher number means housing is less affordable.

Meanwhile in Winnipeg, the  homeownership dream is still strong in relation to some other Canadian cities where affordability has been a challenge for buyers.

“Winnipeg’s housing market continued to be vibrant in the second quarter (of this year) as it nearly sustained the record-high levels of home resale activity achieved in the first quarter,” wrote the report’s co-authors, RBC chief economist Craig Wright and RBC senior economist Robert Hogue.

“Despite vigorous demand, price increases remained subdued because there are still many properties offered for sale, although inventory has shrunk somewhat this year. This was the case in the second quarter when new listings fell by 5.1 per cent from the first quarter.”

Peter Squire, the market analyst for WinnipegREALTORS®, said the number of available listings is considered elevated when compared to last year.

“For example,” he explained, “the 5,291 MLS® properties listed on the market at the start of August is up 28 per cent over the 10-year average.”

According to the RBC report, Winnipeg housing prices were up 1.9 per cent from the first quarter of this year and 0.5 per cent year-over-year.

“In all,” wrote the report’s co-authors, “housing affordability conditions changed very little in the past year, including the latest period, and are at neutral levels. The aggregate measure edged 0.2 percentage points higher in the second quarter to 29.5 per cent — very close to the 29.9 per cent long-term average.”

By way of comparison, the aggregate measure for Vancouver soared to a record high of 6.1 percentage points in the second quarter of this year and 6.6 percentage points in the first quarter, which means it takes slightly over 90 per cent of median pre-tax income to purchase a house in that city.

Property values have surged ahead by more than 30 per cent in Vancouver, including a 9.1 per cent gain in the second quarter.

“Over-exuberant price expectations likely also have played a prominent role in propelling values on a parabolic trajectory in Vancouver,” wrote Wright and Hogue.

In Toronto, the aggregate measure for homeownership rose to 60.2 per cent

“By all appearances,” according to the report, “rapidly deteriorating affordability had no restraining effect on supercharged demand.”

In Calgary, RBC’s second-quarter affordability measure was well below the long-term average for the area. Saint John and St. John’s posted mild improvements in housing affordability and Halifax also stood out for its attractive affordability level.

Despite ballooning prices in Vancouver, home resales were already on a downward track before the British Columbia government introduced a 15 per cent tax on home purchases by foreign nationals in Metro Vancouver, and area resales could see further significant weakness in the near term if there is a sharp downgrading of future price expectations and a drop in speculative activity.

“Signs of cooling resale activity have emerged in Vancouver and more tentatively in Toronto and we believe the blistering pace of property appreciation in both markets may slow by year-end,” said Wright.

“This likely won't help affordability in the near-term because of demand-supply tightness in the two markets at the present time, but some relief could arrive late this year or early in 2017,” added the RBC chief economist.