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Solid home price increases in Ontario were key to the slight erosion in housing affordability across Canada in Q4 2014, finds a report by RBC Economics Research.

The firm says although owning a home at current market value in Canada became slightly less affordable for the second straight quarter, affordability trends have stayed relatively flat since 2010. This means ownership costs represent no more of a burden at the end of 2014 than in 2010 for a typical household.

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Still, one market had a far reaching impact in the latest period, pulling down affordability data nationally. “We are watching Toronto closely as it’s a market that time and time again shows deteriorating affordability — indicating that owning a home in the area, especially a single detached, is a stretch for many local homebuyers,” says Craig Wright, senior vice-president and chief economist, RBC. “While we’ve seen some improvements over the past couple of years, Vancouver still takes the top spot for the least affordable market in Canada.”

The report notes resale activity experienced the steepest monthly decline in four and a half years, with the number of homes changing hands falling 5.6% between November and December. January 2015 brought more of the same, with resales falling another 3.1%. RBC indicates this new bout of weakness can be largely attributed to the sharp drop in oil prices, which damaged confidence in oil-producing provinces.

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“Calgary became a buyers’ market in the fourth quarter following a prolonged period of nearly three years when sellers had the upper hand,” says Wright. “Demand-supply conditions in most other local markets remained generally balanced with the exception of Vancouver, which stood out as a sellers’ market.”

The firm adds the BoC’s move to cut its overnight rate to 0.75% will likely help improve housing affordability in the near term. “By 2016 however, we expect the BoC will reverse course and begin to normalize monetary policy — any rise in interest rates would threaten to erode affordability conditions and weigh on homebuyer demand in Canada,” notes Wright.

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Provincial breakdown

British Columbia: Housing affordability slightly improved across all categories of homes measured by RBC, primarily reflecting stronger household income arising from brighter economic prospects in the province. During Q4, RBC’s measures eased between 0.1 and 0.7 percentage points.

Alberta: Housing affordability was mainly unchanged in Alberta, continuing to be fairly attractive relative to other provinces and compared to historical averages. The measure for bungalows fell by 0.4 percentage points, and remained unchanged for both condos and two-storey homes.

Saskatchewan: Price declines in the province contributed to the fifth consecutive quarter of affordability improvements. RBC’s measures fell by 0.6 percentage points for both bungalows and two-storey homes. The measure for condos, however, rose by 0.6 percentage points.

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Manitoba: It became more affordable to buy a home in Manitoba, with measures falling across all housing categories (between 0.1 and 0.4 percentage points over the third quarter).

Ontario: The housing market bucked the generally improving trend in affordability across Canada in Q4. RBC’s measures rose in all categories between 0.2 percentage points and 1.0 percentage points.

Quebec: Steady improvements in Quebec’s housing affordability continued, with RBC’s measure declining across all categories tracked. Measures fell by 0.6 percentage points for two-storey homes and by 0.4 percentage points for both bungalows and condos.

Atlantic Canada: The region’s homebuyers continued to face some of the most affordable conditions across the country. Affordability measures fell for both the two-storey and bungalow segments, by 0.5 and 0.1 percentage points, respectively. The measure for the condo segment edged higher by 0.1 percentage points.

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