Prices rising but still plenty of affordable homes

Manitoba’s housing affordability declined for a third consecutive quarter, according to the latest Housing Affordability Index recently released by RBC Economics.

Despite the decline, Manitoba remains one of Canada’s most affordable housing markets.

“While house prices have gone up dramatically in the past few years,” said Winnipeg Real Estate Board president Walter Boni, “there were still 21 per cent of all house sales in April under $100,000 and another 12 per cent sold in the price range from $100,000 to $129,999.”

“The two-storey home and condo sectors saw the strongest decline in affordability this quarter (in Manitoba),” said Derek Holt, assistant chief economist, RBC.

“Solid house price increases and higher mortgage rates account for Manitoba’s overall deterioration in housing affordability."

The RBC Affordability Index, which measures the proportion of pre-tax household income needed to service the costs of owning a home, deteriorated for all housing types in Manitoba with a detached bungalow reaching 33.5 per cent. A standard two-storey home moved to 34.5 per cent, a standard townhouse to 19.6 per cent and a standard condo to 18.8 per cent.

RBC said year-over-year price growth for a detached bungalow remained steady at 12 per cent. However, compared to the previous year,  two-storey, townhouse and condo housing classes also had first quarter price surges, jumping 21.9 per cent for a two-storey, 17.8 per cent for a townhouse and 24.2 per cent for a condo. 

Even with across-the-board deterioration in affordability, condos still remain the most affordable option, requiring about 19 per cent of average pre-tax income to cover costs.

The higher the index, the more costly it is to afford a home. For example, an affordability index of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.

“The cost of homeownership in Canada, including financing, utilities and property taxes, rose at a faster pace than incomes for the second consecutive quarter,” said Derek Holt, assistant chief economist, RBC. “While property taxes and utilities increased this past quarter, most of the deterioration in affordability was driven by a surge in home prices and rising mortgage rates.”

Across Canada, the most affordable housing class remains the standard condo, with an index of 27.4 per cent. A standard townhouse is next at 31 per cent followed by a detached bungalow at 38.8 per cent. A standard two-storey home is still the least affordable housing type with an index reading of 44.5 per cent.

According to RBC, new homes now represent about 32 per cent of all homes sold in Canada, compared to about 42 per cent in the late 1980s. At the same time, new home prices have generally been more stable than resale prices as evidenced by the pace of new and resale price gains in recent years. 

RBC said this trend is changing as new home prices have begun to accelerate, though at a much slower pace than the late 1980s, when both new and resale prices were rising at comparably high rates.

“The continued upward pace of resale prices and mortgage rates into the second quarter of 2006 does not bode well for near-term affordability,” added Holt.

RBC’s affordability index for a detached bungalow for Canada’s largest cities is: Vancouver 64.4 per cent, Toronto 41.7 per cent, Calgary 32.7 per cent, 

Montreal 34.9 per cent and Ottawa 28.9 per cent (Winnipeg was not included in the RBC chart).

Housing affordability declined the most in British Columbia. B.C. was at or near its highest point on record in every house class except standard condominiums. B.C.’s housing market continues to be driven by resale activity.

In  Alberta, the cost of owning a home  continued to increase, as rapidly rising house prices and mortgage rates outpaced strong income and employment growth for the second consecutive quarter.

Saskatchewan’s affordability declined across all 

housing classes for a second consecutive quarter. Higher utility costs and rising mortgage rates led to the deterioration, despite decent income growth.

While Ontario’s housing market continues to see signs of  a soft landing, housing affordability declined. Income gains of about $50 per month this quarter were not enough to offset higher mortgage rates and higher utility costs.