Housing gets alot less affordable

Housing affordability is deteriorating across Canada as price increases outstrip gains in household income, a report said Friday.

Affordability worsened for all four housing types in the last quarter, led by poorer conditions in Saskatchewan, which is seeing an influx in migrants, said RBC Economics.

And it's likely to get worse, now that mortgage rates hit a five-year high in the current quarter and are expected to rise further, the report said.

“Long-term mortgages are likely to rise by about 75 basis points from today's levels next year,” said Derek Holt, RBC's assistant chief economist. “The end result could mean a more significant deterioration in affordability later this year.”

Higher borrowing costs come as house prices continue to streak higher. The average resale price of a home topped the $300,000 mark for the first time in April, according to the Canadian Real Estate Association.

Affordability had been improving at the end of 2006, RBC said. That's shifting. The load of carrying a mortgage got heavier in the most recent quarter, “with price gains being the main factor,” Mr. Holt said. “This erosion occurred despite the strongest gain in median before-tax household incomes in about a year-and-a-half.”

The most affordable housing class is still the standard condo, requiring 27.5 per cent of income. A standard townhouse is next at 31.5 per cent, followed by a detached bungalow at 39 per cent. A standard two-storey home remains the least affordable housing type at 44 per cent, the bank said.

Sales growth in most cities continue to outstrip listings and some housing markets — particularly in central Canada and B.C., where both new listings and sales are easing simultaneously — are likely to experience a controlled cooling.

Among markets, Alberta, Saskatchewan, Manitoba and Quebec witnessed the steepest affordability deterioration. Standard two-storey homes in B.C. and the Atlantic region improved a bit, as did bungalows in Ontario.

Saskatchewan saw the sharpest pace of deterioration, led by Saskatoon. “An influx of migrants, which is at a twenty-five year high, complemented a pick up in wage growth and caught the housing supply off-guard,” the report said.

The bank's housing affordability measure is based on the costs of owning a detached bungalow. The higher the reading, the more costly it is to afford a home. An affordability reading of 50 per cent means homeownership costs, including mortgage payments, utilities and property taxes, make up half of a typical household's monthly pre-tax income.

RBC's affordability measure for a detached bungalow in Canada's largest cities is:

Vancouver — 68 per cent

Toronto — 43 per cent

Calgary — 40 per cent

Montreal — 35.4 per cent

Ottawa — 30.5 per cent

(prepared by Tavia Grant/Globe and Mail)