Are Canada’s housing markets even serving their own populations anymore?
We are certainly not out of bounds to wonder that, given new research showing only small fractions of families in Canada’s largest cities can afford to buy an average-priced home.
The latest housing affordability report from Royal Bank of Canada included estimates that only 12 per cent of Vancouver families could afford an average home at current prices, while Toronto is a little better at 20 per cent.
“And this isn’t taking into account the mortgage stress test,” economists Robert Hogue and Craig Wright wrote.
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But while Toronto and Vancouver’s astronomical prices have stolen all the attention, RBC’s research highlights how prices have risen beyond affordability for many people in other cities as well.
In Montreal, which is considered almost comically affordable by Torontonians, only 36 per cent of families can afford an average home. Fewer than half can afford one in Calgary, Edmonton and Ottawa.
If there’s good news here, it’s that things have been moving in the right direction recently. RBC’s affordability measure has declined for two straight quarters, meaning housing is becoming more affordable.
“Price declines in the West and parts of Atlantic Canada, as well as rising household income, helped lower the bar to ownership in most markets,” Hogue and Wright wrote.
Canada-wide, it now takes 51.4 per cent of an average household income to cover the costs on an average house, down from 53.9 per cent six months earlier.
Vancouver’s housing affordability saw a large improvement, dropping to 82 per cent of income, from 86.9 per cent six months earlier. In Toronto, the ratio fell to 66 per cent, from 75.3 per cent six months earlier.
But those are still “dreadful” affordability levels, the RBC economists wrote.
At this pace, Greater Vancouver’s housing slowdown would have to last another five years before the city became affordable, by Canada Mortgage and Housing Corp.’s standard of 33 per cent of income. Toronto’s slowdown (if it even still exists) would have to continue for another four years.
“We expect overall home-ownership costs to continue to ease in the near term, albeit incrementally,” the RBC economists concluded.
“Interest rates are no longer poised to increase amid heightened global trade uncertainty. And despite signs of a cyclical market bottom emerging this spring, we expect home prices to remain under downward pressure for months to come in many western Canadian markets,” they concluded.