Affordability worsens in Vancouver, Toronto, says RBC

Surging prices in Vancouver’s already-scorched housing market have resulted in affordability being at its worst in the area — and it’s only set to deteriorate more, according to Royal Bank of Canada’s Housing Affordability report.

The report released June 22 indicates affordability has continued on a downward spiral in usual-suspect markets, Toronto and Vancouver. In the first quarter of this year, Vancouver’s affordability rose 6.5 per cent to reach 87.6 per cent — the highest ever recorded rate in the country. For a single-detached home, the rate increased by 9.9 percentage points to make the rate 119.5 per cent.

The rate indicates the portion of household income that would be required to pay the mortgage on a house at market price. A higher percentage indicates a less affordable market.

Single-detached homeownership will continue to be a challenge for many in Vancouver and Toronto, said Robert Hogue, senior economist at Royal Bank.

“They will face greater challengers to become an owner. That’s the bottom line there,” he said. “Those who were hoping to own a single detached might have to change their expectations.”

Shifting priorities will vary based on the individual and their situation, but many who want to stay in two of Canada’s largest cities may want to stick to renting, or condo living, said Hogue.

In the same quarter, Toronto follows Vancouver as the least affordable market, gaining 1.1 percentage points to reach a 60.6 per cent affordability rate. The rate for a single-detached home specifically increased 1.2 percentage points, resulting in a 71.7 per cent rate.

“Home prices not only still rise rapidly in both markets, but they are also doing so at an accelerating rate, thereby raising concerns about overheating,” the Royal Bank states in the report.

The national aggregate measure for Canada rose 0.8 percentage points to reach 47.1 per cent, the highest since the second quarter of 2010. But the bank notes this statistic was buoyed by Vancouver, Toronto and Victoria — the only markets that saw more of an increase.

The bank noted in the report that affordability deterioration was “minimal” outside of these two major markets, and are in line with historically average rates. Cities like Winnipeg, Regina and Saskatoon made gains in affordability.

“Balanced conditions in the majority of other markets are likely to keep affordability within reasonable levels in most of Canada,” the report states.

If single-detached homeownership is truly a major goal for some, then considering other thriving Canadian cities should be a serious option, said Hogue.

“In Fredericton, the affordability of a single detached is better than the affordability of a condo in Toronto and Vancouver,” he said.

But a willingness to put roots down in thriving metropolitan areas like Vancouver is preventing many from making an exodus, opting to hold off ownership for now in exchange for city life, Hogue said.

Credit union Vancity released a report last month, indicating that millennials surveyed were willing to hold off on ownership and make financial sacrifices to stay in Vancouver. Many listed scenic views and an urban setting and lifestyle as what attracts them to the area.

“When you look at other major world cities, a city can still thrive with a lower ownership rate,” said Hogue. Germany has a little over half of the population owning homes, while Canada’s rate is close to 70 per cent.

Hogue said that he’s personally an advocate of homeownership, but Vancouverites and Torontonians may experience a cultural shift where ownership isn’t as common in those areas as it used to be.

Condo construction continues in Vancouver and Toronto, with more units becoming available.

“That will hopefully help to alleviate some of that pressure on the market,” said Hogue.