RBC measure shows Canadian housing affordability has deteriorated to “worst level in 31 years”

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      People may wonder how bad the situation is about housing affordability in Canada.

      A new RBC Economics report could drive one to tears.

      It’s the “worst level in 31 years”.

      That’s from a paper prepared by economist Robert Hogue, which was released Monday (December 20).

      RBC’s affordability measure is the proportion of median pre-tax household income to costs required to maintain a home.

      Costs include mortgage payments, property taxes, and utilities.

      Simply put, the higher the measure, the less affordable it is to own a home.

      For the third quarter of 2021, the measure increased by two percent to 47.5 percent.

      “It came on the heels of a huge 2.7 percentage increase in the second quarter that completely reversed improvements at the start of the pandemic,” Hogue wrote.

      The 47.5 percent figure represents the cost of ownership of an aggregate of all types of homes.

      The long-term average has been around 40-41 percent in Canada since 1985.

      Talk about housing unaffordability inevitably leads to Vancouver.

      “The area still reigns supreme as Canada’s least affordable market,” Hogue noted about this Western Canadian metropolis.

      As of the third quarter of 2021, RBC’s affordability measure shows Vancouver at 64.3 percent.

      Toronto follows as the second least affordable with 61.9 percent.

      In Montreal, it’s 40.7 percent; Ottawa, 40 percent; Calgary, 32.8 percent; and Edmonton, 28.5 percent.

      It’s only going to get worse.

      “We expect ownership costs to continue to rise quickly in the period ahead,” Hogue stated.

      The RBC economist noted that home prices have increased “amid strong demand and scarce inventories this fall”.

      Housing loans will also get more expensive.

      Hogue related that fixed mortgage rates have gone up since summer.

      In addition, the Bank of Canada is expected to hike its overnight rate next spring, which means variable mortgage rates will go up.

      In short, the “knock on affordability will be felt across the country”.

      For buyers, the outlook is “grim”.

      “We estimate rising interest rates alone could drive up our national affordability measure another 2.0 to 3.5 percentage points over the coming year,” Hogue wrote.

      In addition, a further five percent increase in home prices would add an extra two percent to RBC’s affordability measure.