Home ownership less affordable: report
OTTAWA—Home ownership has become less affordable for the average Canadian but that hasn’t stopped many from jumping into what already may be an over-priced market, suggests a new report from the Royal Bank.
Royal Bank said its housing affordability index reversed course in the second quarter of this year in two of the three categories it measures—bungalows and two-storey homes—after generally improving over the past year.
The quarterly increase was not spectacular—0.3 points to 42.7 percent on a detached bungalow and 0.4 points to 48.4 percent on a standard two-storey home.
The index on a condo was unchanged at 27.9 percent.
As with past samplings, Vancouver and Toronto continue to stand out as the least affordable cities.
During the second quarter, Vancouver’s affordability reading rose 2.2 points to 82.1 on a detached bungalow while Toronto’s edged up half-a-point to 54.5.
By contrast, other major municipalities were far more tame and below the national average.
The affordability index measures the cost of servicing a home, including mortgage payments, utilities, and taxes, in relation to a household’s pre-tax income.
The higher the reading, the less affordable is a home to a particular family.
RBC chief economist Craig Wright noted the deterioration in affordability did not scare many Canadians from jumping feet-first into the housing market during the second quarter as sales actually surged by 6.4 percent, following a general slowdown since last summer’s introduction of stiffer mortgage lending rules.
“We saw a bit of a bounce-back in prices,” said Wright.
“We had a series of regulatory changes, but now it looks like the market has adjusted and now seems to be recovering somewhat,” he added.
The report is for the April-June period and does not capture this month’s announced increases of between 0.1 and 0.2 percent—10 or 20 basis points—in posted mortgage rates at several major banks.
“Mortgage rates will be the next challenge,” Wright warned.
“The move upward we’ve seen probably suggests that affordability will be a little more challenging [in the third quarter].”