Vancouver, Toronto markets drive decline in housing affordability: RBC

Housing affordability in Canada has continued to erode in the first three months of the year, with Toronto and Vancouver featuring prominently in that decline, according to a new report from RBC.

The two housing hot spots have grown substantially less affordable, although the change was not as pronounced in most other parts of the country, the bank said in its latest quarterly look at the housing market.

Rising house prices were the main cause for the decline in affordability, especially in the single-detached home segment. However, in Calgary and Edmonton, which have been affected by the decline in oil prices, slipping income was the main factor behind reduced affordability in those markets.

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Meanwhile, Winnipeg, Regina and Saskatoon actually went against the trend and became more affordable for some or all housing categories in the January-March quarter.

'Out of reach'

For the Vancouver area, RBC said owning a single-detached home at market prices has "become out of reach for all but just a minority of higher-income households."

RBC's affordability measure shows the proportion of median pre-tax household income required to pay for mortgage payments, property taxes and utilities based on the average market price for a dwelling.

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The bank said that the affordability measure for the single-detached category in Vancouver rose by 9.9 percentage points to 119.5 per cent, making it the worst ever recorded anywhere in Canada.

Stretched affordability

In Toronto, by comparison, it would take 71.7 per cent of a typical household income to cover ownership costs at market prices in the first quarter.

RBC characterized affordability in the Toronto's single-detached home segment as "significantly stretched," but said conditions in the condominium market were "much less severe."

The hot housing markets in Vancouver and Toronto prompted warnings from some quarters. TD has said the markets are ripe for correction," while the Bank of Canada has said that house price gains in the two regions are unsustainable.

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However, RBC said it doesn't expect a change in the country's divided housing situation soon, as resale activity and demand in Vancouver and Toronto are still going strong.

"We expect such market conditions to fuel further rapid price increases in Canada's hottest markets in the near term," RBC said. "This would mean that owning a home — especially a single-detached dwelling — at market price is likely to become even less affordable in those markets."