BC’s housing revival continues dispite deterioration in affordability

Tuesday, May 27th, 2003


B.C.’s housing revival continues despite deterioration in housing affordability, says RBC Economics

VANCOUVER, May 27, 2003 – B.C.’s housing market remains strong and is continuing to contribute significantly to the province’s economic growth, although the cost of owning a home has increased slightly, according to a report released today by RBC Economics.

RBC’s Housing Affordability Index for B.C. — which measures the proportion of pre-tax household income needed to service the costs of owning a home – climbed to 42.8 per cent in the first quarter of this year, from 42.2 per cent during the previous quarter. This translates into a monthly payment of $1,586 for an average detached bungalow (principal, interest, tax and utilities), and compares with a national average of 32.5 per cent, or $1,264 per month.

“Housing market conditions in B.C. are the tightest in the country, as there is a severe shortage of available listings and high demand,” said Carl Gomez, RBC economist. “Further increasing demand are low mortgage rates that have left open a window of opportunity for prospective home buyers.”

As for Vancouver, the city remains the most expensive in Canada in which to own a home. In the first quarter of 2003, its housing market was one of the hottest in the country with existing home sales up five per cent from the previous quarter. Tightening market conditions due to a slowdown in new listings caused RBC’s affordability indicator to rise to 49.4 per cent in the first quarter of 2003.

“With a modest increase in borrowing costs expected later in the year, affordability in B.C. is likely to continue to erode, especially if prices continue to rise,” said Gomez. “To maintain a strong housing market over the long-term, there will have to be an improvement in other underlying fundamentals such as income growth and employment. Better cyclical prospects for B.C.’s economy do suggest that these fundamentals will be moving in the right direction.”

The RBC report notes Canadian home ownership costs ranged from a low of $923 in the Atlantic region to a high of $1,586 in British Columbia. The affordability index in Canada‘s three largest cities breaks down as follows for the first quarter of 2003: Vancouver (49.4 per cent), Toronto (39.7 per cent) and Montreal (30.1 per cent).

The Housing Affordability Index, which RBC has been compiling since 1985, is based on the costs of owning a detached bungalow, a typical target home for first-time buyers. The higher the index, the more difficult it is to afford a house. For example, an affordability index of 50 per cent means that home ownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s pre-tax income.

Highlights from across Canada:

  • Alberta: Like other regions in the country, rising house prices marginally eroded housing affordability in Alberta, with RBC’s indicator sitting at 28.3 per cent or a monthly payment of $1,227 during the first quarter of 2003. However, Alberta is the second most affordable market in Canada behind only the Atlantic region. This is largely due to strong underlying economic fundamentals that have sustained the province’s solid household income growth.
  • Saskatchewan: The cost of home ownership in Saskatchewan continues to be among the lowest in Canada behind the Atlantic region and Alberta at 29.9 per cent of household income in the first quarter of 2003. While housing prices, on average, increased in the first quarter, housing demand is showing signs of moderation, as existing home sales fell two per cent in the first quarter of 2003 from the previous quarter.
  • Manitoba: RBC’s housing affordability indicator for Manitoba rose to 31 per cent in the first quarter of 2003 from 30.7 per cent in the previous quarter. Market conditions remain extremely tight due to a severe shortage of supply.
  • Ontario: Affordability mildly eroded during the first quarter with RBC’s index climbing to 31 per cent from 30.7 per cent in the last quarter of 2002. While borrowing costs were lower in the first quarter, the increase in house prices, and to a lesser extent higher utility costs, pushed the average monthly payment for owning a detached bungalow to $1,390. The pace of house price appreciations in the province is beginning to cool as market conditions are steadily making their way to more balanced conditions.
  • Quebec: Housing affordability continued to deteriorate in the first quarter of 2003 as a sharp rise in housing prices offset the gains from lower borrowing costs. RBC’s affordability indicator climbed to 30.5 per cent during the first quarter of 2003 from 29.7 per cent in the previous quarter. This translates into a monthly payment of $1,064 for an average detached bungalow. An improvement in new listings, coupled with a slowdown in sales activity, is expected to bring Quebec‘s housing market into balance.
  • Atlantic region: Ownership costs for a detached bungalow in the Atlantic region remain the most affordable in Canada at 26.8 per cent of household income in the first quarter of 2003, slightly higher than the 26.6 per cent level posted in the last quarter of 2002. Like the rest of the country, rising housing prices due to tight market conditions was the main contributor to the decrease in affordability.

The full RBC Housing Affordability Index report is available online at www.rbc.com/economics/market/pdf/house.pdf.

About RBC Financial Group
Royal Bank of Canada (TSX, NYSE: RY) uses the initials RBC as a prefix for its businesses and operating subsidiaries, which operate under the master brand name of RBC Financial Group. Royal Bank of
Canada is Canada‘s largest financial institution as measured by market capitalization and assets, and is one of North America‘s leading diversified financial services companies. It provides personal and commercial banking, wealth management services, insurance, corporate and investment banking, and transaction processing services on a global basis. The company employs 60,000 people who serve more than 12 million personal, business and public sector clients through offices in North America and some 30 countries around the world. For more information, please visit www.rbc.com.


Comments are closed.