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Ontario Real Estate
Ontario on the brink of affordability improvements, says Economic Report
TORONTO - Since the pace of price gains and construction activity topped out five years ago, Ontario's housing markets have been experiencing a soft landing relative to the rest of the country and this will be reinforced by expected improvements to housing affordability in 2008, according to a new housing report issued today by RBC Economics.
"As mortgage rates drift lower and house price gains moderate even
further, Ontario should see affordability improve across all housing classes
in 2008," said Derek Holt, assistant chief economist, RBC. "A slower economy
this year will reinforce already softening housing market trends."
RBC's Housing Affordability measure for Ontario, which captures the
proportion of pre-tax household income needed to service the costs of owning a
home, deteriorated across all four housing classes last quarter as the
benchmark detached bungalow moved to 38 per cent, the standard townhouse to 32
per cent, the standard condo to 29 per cent and the standard two-storey home
to 44 per cent.
In 2007, higher mortgage costs contributed to a marked deterioration in
affordability across all housing segments. Going forward, markets will
continue to soften as housing starts are poised to drop three per cent in 2008
and a further ten per cent in 2009. Despite the soft landing, Ontario
homeowners have still realized healthy annual returns of between five and
seven per cent for the past several years.
Toronto's housing affordability deteriorated across all housing segments
last year, but remained well below peaks reached in the housing bubble of the
1980s. With the housing market continuing to ease across the province, Toronto
will likely follow suit. The softening is expected to remain steady and
controlled as key fundamentals like historically low unemployment rates and
healthy income gains help improve affordability. The city's hot condo market
experienced rapid price growth last year along with a corresponding surge in
construction activity. A larger supply of condos on the market should relieve
affordability pressures over the next few years.
"We anticipate that the deteriorating trend will begin to reverse in 2008
as house price growth moderates and mortgage rate relief starts to
materialize," said Holt.
Spurred by the strong demand for condos, new home construction was strong
last year but is expected to taper off in 2008. Resale markets maintained
stable growth, with annual price gains between three and seven per cent. At
the end of 2007, the pace of affordability deterioration slowed significantly
for all four of Ottawa's housing segments. Cooler market conditions and lower
forecast mortgage rates should help improve Ottawa's housing affordability for
2008.
The Housing Affordability measure, which RBC has compiled since 1985, is
based on the costs of owning a detached bungalow, a reasonable property
benchmark for the housing market. Alternative housing types are also presented
including a standard two-storey home, a standard townhouse and a standard
condo. The higher the measure, the more costly it is to afford a home. For
example, an Affordability measure of 50 per cent means that homeownership
costs, including mortgage payments, utilities and property taxes, take up 50
per cent of a typical household's monthly pre-tax income.
The report also looked at mortgage carrying costs relative to incomes for
a broader sampling of other cities across the province, including London,
Kitchener, Windsor, St. Catharines, Brantford and North Bay. For these smaller
cities, RBC has used a narrower measure of housing affordability that only
takes mortgage payments relative to income into account.
RBC's Affordability measures for a detached bungalow for Canada's largest
cities are as follows: Vancouver, 72 per cent, Calgary, 46 per cent, Toronto,
46 per cent, Montreal, 37 per cent and Ottawa, 32 per cent.
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Highlights from across Canada:
- British Columbia: Housing affordability reached into uncharted
territory late last year as affordability deteriorated to its worst
level since 1985 when RBC started tracking conditions. Modest
improvements are expected for 2008.
- Alberta: Many prospective homebuyers were priced out of the market
last year as housing affordability conditions eroded, pushing markets
into unsustainable territory. With a softer influx of migrants, the
housing market is poised for a significant slowdown and improved
affordability.
- Saskatchewan: Housing affordability deteriorated sharply across all
home segments last year as a sudden influx of migrants strained
existing housing capacity. In 2008, housing affordability conditions
are expected to stabilize.
- Manitoba: The province's housing market is still running at full
tilt. Affordability should improve as rising costs start to weigh on
demand and help rebalance the market in 2008.
- Quebec: Housing affordability continued to deteriorate last year.
Stable and modest price gains combined with some mortgage rate relief
this year should translate into an overall improvement in
affordability conditions across all four home segments in 2008.
- Atlantic region: Strong house price gains and rising mortgage rates
chipped away at affordability conditions in 2007. In 2008, Atlantic
Canada is expected to move onto a softer growth trajectory as housing
construction activity gears down.
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