Housing affordability in Canada at worst levels since 1990: RBC

Homes in Canada reached their worst affordability level since 1990 in the second quarter of this year, an RBC report says.

Anyone who bought a home in the second quarter would have needed to spend 53.9% of their household income on the home ownership costs, such as mortgage payments, utilities and property taxes, the report says.

This aggregate housing affordability measure is up from 43.2% three years ago.

Rising interest rates are the main reason why houses became less affordable. Increases to mortgage rates, since the Bank of Canada started to raise interest rates in July 2017, have kept “ownership costs on a steep upward trajectory despite home prices stabilizing,” the report says.

Higher borrowing costs accounted for the 2.6 percentage-point increase in the affordability measure in the last year and the 1.1 percentage-point rise in Q2.

Vancouver has the least affordable housing in Canada, where it would take 88.4% of a household’s income to pay for the ownership costs. Toronto ranks second for affordability with a measure of 75.9%. Victoria is the third most unaffordable city, where it would take 65% of a household income to cover the ownership costs.

“The grim outlook for prospective home-buyers will likely continue in the near term,” said Craig Wright, chief economist at RBC, in a release. “We anticipate the Bank of Canada will proceed with further interest rate hikes well into 2019. This will keep mortgage rates under upward pressure and boost ownership costs even more across Canada.”

A UBS study released yesterday ranks Toronto and Vancouver among the top cities worldwide for overvalued property markets facing the risk of a housing bubble.

Read the report here.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.