RBC: Canada’s largest cities show horrible housing affordability level

The latest report by RBC Economics shows its absolutely impossible for many Vancouver residents to cope with the cost of homeownership without taking on debts.

The analysis by RBC Assistant Chief Economist Robert Hogue says mortgage payments, property taxes, and utility bills for an average single-family detached house in the Vancouver area would have taken 111.1% of median pre-tax household income in the first quarter of 2022. It’s 21.9% more than a year earlier, and almost 10% more than in Q4 2021.

The national results show that 54% of pre-tax household income would be necessary to cover the cost of homeownership in case of all housing types in Q1 2022. Hogue pointed that it’s the worst affordability rate in almost 30 years, and it’s going to get even worse in the nearest future. In Canada’s largest real estate market – Toronto – 74.9% of income was eaten by homeownership costs, which is 5.5% more than in Q4 2021, and 16.7% more than in Q1 2021.

“The central bank’s aggressive interest rate hike cycle will keep raising ownership costs in the near term, making RBC’s national affordability rate even worse,” – he noted.

According to Hogue, rate increases will be especially painful for those who have homes in Canada’s most expensive markets. “Affordability will get even more horrible in Vancouver, Toronto and Victoria,” – he noted. For instance, RBC’s report shows that a 1% rate increase will make housing affordability deteriorate by 8.8% in Vancouver, but by 5.5% on a national level.

In Hogue’s opinion, the recent wage increases will help improve affordability, “however, the most effective factor that could solve this issue is a price correction (decline).” RBC believes the national average home price will go down by more than 10% this year.