Home affordability: A new oxymoron?

Housing affordability across Canada has dropped to its lowest level since the country slid into a recession in 1990, with the standard two-storey home eating up nearly half of a household's income, says a report from Royal Bank of Canada.

According to RBC's affordability measure, which determines the proportion of pretax income an average household needs to maintain a place, Vancouver is still the priciest big city in the country to own a home.

It found that having a detached bungalow in Vancouver takes up 74 per cent of a household's income, well ahead of Toronto at 47 per cent, Calgary at 42 per cent and Ottawa at 32 per cent.

"You'd have to be an idiot to buy right now in Vancouver," is the conclusion Mitchell Purdy, 25, has come to after nine fruitless months of condo searching with his girlfriend.

Mr. Purdy, who works for an IT staffing and sales company, had been looking for a two-bedroom condo in a fairly central location. Of the 70 resale units he considered, all were priced well above $400,000. The two units they bid on ended up with multiple offers which vaulted their sale prices up by around $40,000 apiece.

"I've pulled out of the market in the past six to nine months for obvious reasons...," Mr. Purdy said.

"It was stressful, aggravating and very frustrating."

Unwilling to move to the suburbs or to squeeze into a shoebox studio apartment, the couple has decided to keep renting and store away a nest egg until the time is right to buy. "I'll wait to see if prices really cool down," Mr. Purdy said.

RBC's housing affordability measures looks at the proportion of the median pretax household income needed to cover mortgage payments, property taxes and utilities. Household income, the amount earned in the form of a paycheque, is based on median figures from Statistics Canada.

Data from the Real Estate Board of Greater Vancouver show that a typical detached house in the Vancouver area cost $761,342 in February, up 14.1 per cent from a year ago.

Purchases of multimillion-dollar homes by high-income earners disproportionately sway the Vancouver area average data, RBC acknowledged, although it still allows them to compare markets across the country.

"In Vancouver ... you know it is not the typical man or woman on the street that is buying a house," said Derek Holt, assistant chief economist at RBC and co-author of the report.

"That is the exclusive purview of the professional, double-earner household."

On a national basis, a sustained rise in housing prices, driven by strong economic expansion and a solid job market, caused affordability to end 2007 at its worst level since 1990, RBC said.

However, the RBC report foresees some relief in 2008, saying that lower mortgage rates and weakening house price gains should lead to improved affordability across the country.

"The national figures are skewed by the Alberta figures and that is a market were we are expecting price drops to occur," Mr. Holt said.

In hyper-expensive Vancouver, meanwhile, buyers can expect to see "a dramatically cooler pace of price gains this year."

(prepared by Roma Luciw and Lori McLeod/Globe and Mail)

BY THE NUMBERS......

48
Percentage of pretax income needed to own a two-storey home (on a national basis)

42.5
detached bungalow

34.5
standard townhouse

30
condominium

(Source: Royal Bank Canada)