Rising house prices Outpacing Incomes
National Post
Rising house prices Out pacing Incomes: Will Ease, RBC Says
Thursday, Dec. 21, 2006
Housing continues to become less affordable across the country as rising house prices outpace the growth in incomes, the country's largest financial institution said yesterday.
Howere, other than in Alberta, the pace at which housing costs are outpacing incomes has slowed, RBC said. And housing will become more affordable next year across the country, including Alberta, thanks to mortgage rate declines, easing energy prices, and more modest increases in home prices, it predicted.
"In fact, after three consecutive quarters of sharp deteriorations in affordability, the pace slowed for all home classes in almost every region of the country," said RBC economist Derek Holt. "Alberta's housing affordability was the lone exception, but it will probably join the rest of the country next year."
Home construction and house resales are expected to soften nationwide in 2007, alongside more reined-in expectations for house price gains, RBC said. The overall volume of home sales should remian high, while most of the increase in home values in recent years should also be retained.
The affordability index, which measures the proportion of pre-tax household income needed to service the costs of owning a standard bungalow, was 40.2% nationally in the third quarter, up from 39.5% in the previous quarter.
The most affordable housing class remained the standard condo, with an index reading of 28%, a standard townhouse next at 32% followed by a detached bungalow at 40.2%, and a two-storey home at 45.8%. While the index for a bungalow rose nationally, it declined slightly in Manitoba to 33.8%, in Quebec to 36.2%, and remained steady in Ontario at 37.3%, and in Atlantic Canada at 29.7%.
The index rose in British Columbia to 63.9%, in Alberta to 37.2%, and in Saskatchewan to 31.0%. Among major cities, housing was less affordable in Vancouver, where the index rose to 70.1%. It also rose in Calgary to 40.9%, in Edmonton to 33.4% and in Ottawa to 30.8%. Housing was marginally more affordable in Toronto, at 43.8%, and unchanged in Montreal at 36%.
"In central Canada, affordability is improving across some housing types despite softening incomes," the report says, noting that in Toronto, for example, prices for two-story homes and townhomes are flat compared to a year ago, while bungalows are up midly, and condo gains are weakening.
"However, British Columbia, Alberta, Saskatchewan and most types of housing in Atlantic Canada, continue to witness deteriorating affordability conditions."