Housing affordability at 17 year low

Years of price gains in Canada's booming housing market have made owning a home the least affordable it's been in 17 years, according to a study released yesterday by RBC Economics.

The study, which examines how much of their income Canadians must put into owning property, says at no point since the fourth quarter of 1990 has average housing affordability dipped so low.

"Housing affordability worsened for the third-consecutive quarter in the third quarter of 2007, and our newly developed econometric models are estimating another deterioration in the fourth quarter before an improving trend unfolds this year," says the report.

The most recent quarter's decline was across almost every housing class in every province and every major city.

The results are strongly influenced by western Canadian housing costs.

The share of income going toward home ownership continues to hit record highs across most housing classes in Alberta, B.C. and Saskatchewan.

In B.C., a staggering 70.8 per cent of income is required to own a standard two-storey home, compared with the national average of 47.4 per cent.

Vancouver is particularly expensive, with a standard two-storey home requiring 75.2 per cent on one's income.

Everything east of Saskatchewan "remains well below the previous record highs for affordability that were set in the late 1980s and early 1990s," the report said.

But for buyers hoping to enter the market, the year ahead should bring some relief, says RBC economist Amy Goldbloom. "We see a significant moderation in house-price gains," Goldbloom said.

"We expect the national average to fall from the 10-per-cent range to the five- to-six-per-cent range.

"We expect that trend to be pretty consistent right across the country."

It should be aided by declines in lending rates, said Goldbloom, who added: "We're looking for five-year fixed mortgages to drift about 50 to 75 basis points lower through 2008."

The current posted five-year rate now stands at an average 7.4 per cent.

"This [slowing of price growth] will tilt the balance in the housing market more towards buyers and away from sellers. Some markets like Calgary and Edmonton are already near that point," the report said.

For the Alberta market, "underlying fundamentals are signalling that housing markets are ripe for a significant slowdown this year."

For the red-hot Saskatchewan market, the report said, "we expect softer but still-elevated conditions. Price gains should moderate from the 30-per-cent range somewhere down in the 15-per-cent range."

Ontario's price gains have not been on nearly so torrid a pace as the West, but affordability has nevertheless declined as a result of higher mortgage costs and costlier conditions.

Conditions should improve in 2008, the report said.

Quebec's housing affordability was also on the decline in the third quarter of 2007, although at a slower pace than the national rate with softening demand expected as a result of slower economic growth forecast for central Canada.

As housing construction activity gears down in the Atlantic region, housing-price gains are expected to ease.

(prepared by John Morrissy/Vancouver Province)