Homeownership affordability improves slightly

Amid all the ongoing talk of mortgage rates, market conditions, high levels of household debt and economic uncertainty, good news comes from RBC Economics Research’s latest Housing Trends and Affordability report. Housing in Canada became more affordable in the second quarter of 2014, thanks in large part to a decline in mortgage rates.

Housing in Canada became more affordable in the second quarter of 2014, thanks in large part to a decline in mortgage rates, RBC says.

“It was more affordable to own a home in virtually all provincial and major local markets across Canada in Q2, and in the face of solid price gains no less,” says Craig Wright, senior vice-president and chief economist, RBC. “We had anticipated a rebound in activity from earlier this year when the harsher than normal winter weather took hold, but the biggest drop in fixed mortgage rates in almost four years and resulting improvement in affordability also gave the Canadian housing market a boost of extra energy.”

The way RBC’s affordability measures work is, the higher the measure, the more difficult 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 pre-tax income. A decline in the measure represents an improvement in affordability.

For the Ontario market, homeownership affordability eased by 0.2 percentage points for detached bungalows (to 44.7 per cent), and by 0.1 per cent for both two-storey homes (50.9 per cent), and condominiums (29.3 per cent) in the second quarter of 2014.

Homebuyers don’t appear to be overly concerned by the fact that affordability remained somewhat stretched for single-family homes, RBC says. Lower rates were the main factor contributing to marginal declines in affordability measures for Ontario.

In Ontario’s largest market, Toronto, affordability improved slightly for bungalows, falling 0.2 per cent (meaning it became more affordable) to 55.9 per cent, while deteriorating slightly in condominiums – up 0.1 per cent to 34.3 per cent. For two-storey homes, affordability remained flat at 65.3 per cent.