RBC predicts poorer housing affordability in Canada

According to RBC’s own measure, the ability for Canadians to purchase a property went down to its worst level in 31 years.

As you know, the national real estate market reached its activity peak at the start of this year, with bidding wars becoming a usual thing even in previously calm markets. Home prices have been skyrocketing nationwide with the exception of the Prairies and New Brunswick. RBC’s ratio of ownership costs to household income was up by 0.9% to 52% in the first quarter of 2021 (in case of affordability, a higher measure points to weaker results). Such an increase offset the short-term growth Canadians enjoyed at the beginning of the COVID-19 pandemic when the government provided financial support.

This sharp prices hike was caused by the combination of restrained supply and strong demand all over Canada, including smaller cities. While condos were still affordable for first-time buyers, that market sector will probably face further affordability issues, RBC says.

The largest affordability hit was reported in Vancouver, where RBC’s affordability measure was up by 1.9%. It’s followed by Montreal with 0.9% and Toronto with 0.6%. Nevertheless, it’s still harder to cope with mortgages in smaller markets.

“A strong wave of buyers (sometimes from large cities) has significantly boosted raised values in smaller markets of Ontario, B.C., Quebec and certain parts of Atlantic Canada. Large price increases have erased their affordability benefits over big cities. Since the pandemic start, mortgage carrying costs were up more as a share of household income in Windsor, Hamilton, London and Niagara than in Vancouver, Ottawa, Montreal or Toronto,” – noted the report by RBC’s Robert Hogue.

However, in Canada’s most expensive markets, the average buyer spends a bigger share of their income on homeownership costs. In Vancouver, for instance, 74.9% of a buyer’s income goes towards homeownership. Then goes Toronto with 67.7% and Victoria with 55.8%.

In its recent report, RBC expects housing affordability to keep eroding affected by strong demand and a lack of supply, even although market activity may moderate.

“In our opinion, home prices will keep growing in the nearest future, further worsening housing affordability,” – the report says. “In addition to it, we believe condo ownership costs will rise following weaker numbers for the better part of 2020. Homebuyers have finally renewed their interest in condos, and inventories are going down.”