Slowdown will be significant

Greater Vancouver's housing market is heading for a significant, but not market-busting, slowdown, says an RBC Economics national-affordability report released yesterday.

According to the RBC Affordability Index, which measures the proportion of pretax household income needed to service the costs of owning a home, B.C.'s housing affordability deteriorated for a fourth consecutive quarter across all four types of homes.

In Vancouver that was especially so. Average prices were up across the board, with two-storey homes reporting the largest dollar value gain this quarter -- up nearly $12,000, to about $575,000 and absorbing 75 per cent of median household income, up from 72.9 per cent the previous quarter.

Qualifying income is based on a 25-per-cent down payment on a 25-year mortgage at a five-year fixed rate.

Derek Holt, assistant chief economist for RBC, said the trend signals an imminent change in the red-hot Vancouver market. "I think 2007 will restore a fair amount of the balance to the market," he said.

"The pace at which new listings are coming on to the market is occurring faster than what sales are taking off the market, so those ratios are backing up in the system. In the last year, B.C. qualifying incomes have gone up by 25 per cent and before-tax income has gone up by four cent.

"That gap just isn't sustainable."

Holt called for "a controlled cooling," whereby existing owners will retain most of their equity gains, while prospective buyers who have been forced to the sidelines should have new opportunities to participate.

Holt predicted the 15- to 25-per-cent annual price gains in the Vancouver housing market will slow quite substantially next year, with new-home construction and resales softening.

"By the second half of 2007, we should see a set of conditions whereby buyers who've been squeezed out of the market can breathe a little easier," he said.

The next-most-expensive market, a standard two-storey home in Toronto worth $447,000, required 50.4 per cent of household income.

Nationally, condos remain the most affordable housing class, with an index of 28 per cent.

Standard townhouses were the next affordable class at 32 per cent, followed by a detached bungalow at 40.2 per cent. The standard two-storey home is still the least affordable housing type with an index reading of 45.8 per cent.

Three of the four Vancouver housing classes are on track to set records highs for affordability in the fourth quarter this year -- which puts the current market on par with the stress points of the mid-1990s.

But Holt said B.C.'s economic backdrop is much different from a decade ago.

"Ten years ago, the B.C. economy was more challenged and was heading into more difficult conditions," he said. "Currently, you have the stimulus of the Olympics, the development of oil and gas in the northeast, a vibrant software and gaming industry in the Lower Mainland, the provincial government is dealing with modest surpluses instead of deficits, and the province has booming ports because it has diversified trade to capitalize on opportunities in the Pacific Rim.

"There is a much firmer set of supports to housing markets."

(prepared by Jim Jamieson/Vancouver Province)