Housing affordability returns to, or near, long-term averages in Canada: RBC
RBC Economics has just released their latest Housing Trends and Affordability report for the Canadian real estate market. Here are some excerpts that touch on affordability changes nationally, and in Saskatchewan.
Improved affordability lifts Canada’s housing markets
Housing affordability greatly improved in the first quarter of this year; RBC’s affordability measures for all housing types recorded some of their biggest quarterly declines on record (the lower the measure, the more affordable homeownership is). At the national level, the improvement ranged from 2.8 percentage points for standard condominiums to five percentage points for two-storey homes. At the major city level, the decline was as large as 8.6 percentage points (for Vancouver’s two-storey homes). This third consecutive quarterly improvement in affordability has reversed much — although not all — of the deterioration that occurred during 2006-2007 when Canada’s housing markets reached a boiling point. In most areas of the country, RBC’s affordability measures have now returned to, or near, long- term averages, which is consistent with more solid market fundamentals.
Saskatchewan — Finding balance
RBC’s affordability measures for Saskatchewan declined again in the first quarter – between 2.5 and 3.3 percentage points – making the year-over-year drop among the largest on record for the province. Saskatchewan’s housing market now appears to be negotiating its way quite deftly towards a more sustainable level of activity, putting to rest earlier concerns that it might crash following the 2006 – early 2008 boom. Moderately stronger sales of existing homes this spring — after bottoming at the start of this year at still-elevated levels — and a slower pace of properties being put up for sale have restored some balance into the market. This is further helped by considerably weaker construction of new housing units in the first four months of 2009, which will bring fewer new units onto the market. The return to balanced market conditions should help stabilize prices in the period ahead.
Read the full report here.Other posts related to past RBC reports can be found here.
I’m always happy to answer your Saskatoon real estate questions. All of my contact info is here. Please feel free to call or email.
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Norm Fisher
Royal LePage Saskatoon Real Estate
20 comments so far. We'd love to hear your thoughts.
July 8th, 2009 at 1:26 PM
“This third consecutive quarterly improvement in affordability has reversed much — although not all — of the deterioration that occurred during 2006-2007 when Canada’s housing markets reached a boiling point”
They mention boiling point, not housing bubble, cause that is what we had. Housing bubble is too harsh to have printed. Now the market is stabilizing and correcting. Which is good and what we need.
Jason, Crikey, Norm and whoever else is interested. Rolling Stone has an article that blows the doors off Goldman Sachs and mentions their involvement from the Great Depression, Internet bubble, housing bubble, commodities bubble, the rigging of the bailout and the next bubble ( which I have mentioned here before) A long read, but well worth it
THE GREAT AMERICAN BUBBLE MACHINE
http://sites.google.com/site/disclosuredelta/
July 8th, 2009 at 2:26 PM
George, thanks for the article (very enlightening). I agree that the term ‘housing bubble’ is definitely appropriate…
And I think emphasis needs to be placed on ‘correcting’ (rather than ‘corrected’), as in: we could still have a long way to go… Have you been following the recent theft or some proprietary computer code and trade secrets from Goldman Sachs?
July 8th, 2009 at 3:17 PM
yes, I have been following it. I am not surprised, the stock market has been rigged for quite some time and GS is one of the top conspirators. It really is a casino. Looks like oil has been milked for what its worth. Is it dry this time and retreating to the fundamentals?
Back to the housing affordability study. It is correcting, but there is quite a bit of confidence in this market and with low rates I do not see a huge correction in the near future unless the world economy crashes. We will probably see a bunch more of the inventory hit the rental market.
Affordable housing benefits the people at the bottom. These are the drivers of the economy. The real estate value chain http://1.bp.blogspot.com/_5Unw8_SY09A/RnquWEGsayI/AAAAAAAAABU/S1XGE37RXJI/s1600-h/RealEstate_ValueChain.gif
Norm, a 10 month supply of the higher end homes?
That has got to hurt some pocketbooks,
July 8th, 2009 at 3:28 PM
Re: the RBC Housing Affordability Survey
There’s no doubt that “affordability” has improved across markets year-over-year, but this bit just blew me away:
“Monthly payments in the first quarter on a typical detached bungalow (based on the going market value) had fallen to close to 17% from a year earlier in Canada. Among major cities, the decline was as much as 24% in Calgary, 22% in Vancouver, and 20% in Edmonton.”
They state at the end of the document that the measurements are based on a 25% down on a 25 year mortgage loan, at a 5-year fixed rate. Unfortunately, they don’t state what that rate is. I’d also be interested in knowing what percentage of buyers are coming in under these sorts of parameters.
I do have issues with how this is measured, but at least the measurement “issues” are constant over time. The rate of change in affordability is quite something. It’s the “stability” part I’d like to see more evidence of.
George,
I did see that article a few days ago, and unfortunately have not had time to do much more than skim it. Lots of buzz on the net about it- I’ll definitely get to it tonight.
Jason,
“Have you been following the recent theft or some proprietary computer code and trade secrets from Goldman Sachs?”
This one’s for you:
http://www.zerohedge.com/article/aleynikov-transcript
July 9th, 2009 at 11:04 AM
George, “I do not see a huge correction in the near future unless the world economy crashes.” This is looking more and more like a realistic probability with each passing day… the UK is in shambles and the US is now already hinting at a *second* stimulus…
Crikey, “They state at the end of the document that the measurements are based on a 25% down on a 25 year mortgage loan, at a 5-year fixed rate… I do have issues with how this is measured.” I tend to agree. Realistically, how many homebuyers are amortizing over 25 years, let alone in a position to plunk 25% down? Assume the new home is bought for $300,000. With 25% down/25 years (5%) payment is $1,308; same mortgage with 5% down/35 years (5%) is $1,429 (actually more because you’ll have CHMC insurance on top of that). Still, it’s good to see affordability coming down.
Home construction ‘regaining its footing’
http://www.househunting.ca/buying-homes/story.html?id=7c7f7341-2ec4-4c7c-8d21-54a25bef7bd7
July 9th, 2009 at 4:47 PM
Jason and Crikey,
to be fair, this is how they always measure affordability. And most of the people plunking 25% are move up buyers. If it was a first time buyer affordability study there would be few, if any 25% down buyers. Which is not good for any market, but we all know that already:)
Here is a link about my new favorite bank
Craig Roberts, Former Assistant Treasury Secretary has interesting comments on the bailouts, the dollar, and Goldman Sachs
http://globaleconomicanalysis.blogspot.com/2009/07/craig-roberts-former-assistant-treasury.html
July 10th, 2009 at 8:38 AM
Canada loses far less jobs than expected in June. Fantastic numbers for Saskatchewan, where it seems our unemployment rate actually went down in June, in both Regina and Saskatoon, bucking the trend of almost every other jurisdiction in the country. Still the lowest unemployment rate in the country. Pretty amazing.
http://www.theglobeandmail.com/report-on-business/jobless-rate-inches-up-to-86/article1213423/
July 10th, 2009 at 8:49 AM
Wow, you beat me to that post by minutes, Mark! I was particularly impressed by how SK is doing to other Western provinces. Saskatchewan was the only province with an upward trend in employment since October 2008(+1.0%), when employment numbers last peaked. Nothing to sneeze at there.
July 10th, 2009 at 9:42 AM
cbc national last night had a couple of “experts” saying that the recession was pretty much over and housing has seen it’s worst. This was with the expectation that the national economy would lose 35k or more jobs in June not the 7k that was reported. I wonder what they would be saying today!
http://www.cbc.ca/national/blog/special_feature/hard_times_hard_choices/the_bottom_line_part_5.html
Here is a neat interactive map for unemployment
http://www.theglobeandmail.com/report-on-business/unemployment-by-region/article1213792/
Go Sask!
July 10th, 2009 at 10:06 AM
New home prices decline for 8th month
http://www.canada.com/business/home+prices+decline+month/1778190/story.html
“Prices declined the most in Saskatoon, falling 1.2 per cent… Again, yearly declines were greatest in Saskatoon, with a 13.4 per cent drop.”
“‘In Saskatoon, a number of builders reported reduced material and labour costs while other builders have lowered their prices to be more competitive and to encourage sales.’”
July 10th, 2009 at 10:19 AM
George, Canadian job losses slow: economist reaction
http://network.nationalpost.com/np/blogs/fpposted/archive/2009/07/10/canadian-job-losses-slow-economist-reaction.aspx
Douglas Porter, Deputy Chief Economist, BMO Capital Markets
“Today’s job report is not as friendly as the headline would suggest, but it’s also not shockingly weak, such as last week’s dire U.S. payroll news. But even if the Canadian job losses are gradually easing, it’s obvious that recession has yet to let go its steely grip on the economy, with the squeeze remaining particularly intense in manufacturing.”
Stewart Hall, Economist, HSBC Securities
“Although the Canadian employment reports for the last three months have seen a paltry net 13K jobs lost (vs. the 273K lost in the first three months of the year) and may be encouraging the view that the jobs cycle is beginning to bottom, we instead sound a cautious note given our view that a right sizing of the services sector jobs profile may make for a uncomfortable economic recovery in late 2009 and 2010.”
July 10th, 2009 at 11:49 AM
Jason,
a 13.4% price drop on a new home is quite a chunk of change
But on the other hand, new home prices increased 45% from Dec 06 to Dec 07.
http://www.canada.com/saskatoonstarphoenix/story.html?id=7f57ce17-9dce-4c67-89bb-c6b5495d1961&k=25152
Oh, remembering the good ol days.
Kinda like a roller coaster:)
July 10th, 2009 at 1:03 PM
“Kinda like a roller coaster:)”
Hey George… I’m happy to say I’ve (almost) officially joined the ride.
I’d just like to thank Norm, Lyndon and other members of that fantastic team for their assistance with our recent purchase. I’d also like to thank the past and present participants of this blog for helping us work through our concerns about the markets, both large and small. You guys rock.
July 10th, 2009 at 1:29 PM
George, it certainly is (and that’s also the average; higher-end new homes have dropped much more). Numbers can be misleading, though; a 45% increase from $175,000 to $253,750 is a bump of +$78,750. But a 13.4% drop from $253,750 is a hit of -$34,002. So in reality, a drop of 13.4% doesn’t look as significant as the 45% increase, but it translates into a 43% reduction when you look at the net gain.
Crikey, congrats on your (soon-to-be) new home!
July 10th, 2009 at 2:01 PM
Crikey,
welcome to the dark side of home ownership!
just kidding:)
It is not easy for first time buyers right now, but you could be a poster child on how to pay down school debt, save money and buy a house that does not max out your budget each month. Good for you.
Also good job in using the No 1 realtor team in Saskatoon. But this blog is a little biased:)
July 10th, 2009 at 8:44 PM
Crikey,
Thanks for the kind feedback, and for your business. We appreciated having the opportunity to work with you and your family.
July 12th, 2009 at 7:32 PM
Thanks, George, although I’m not sure about the “poster child” thing.
We tried to cover our financial butts as best we could, given the range of outcomes we think are probable. Anything’s possible, I suppose, but the feeling we have a goodly amount of financial leeway in this sure helps. In the meantime, we’ll definitely enjoy it! There are lots of things that we’ve been looking forward to doing that you just can’t do when you’re renting a place. If you’ve got any advice about DIY renos, do tell…
July 13th, 2009 at 8:22 AM
Crikey,
first thing, would be to have the proper tools for the job you are doing and don’t cheap out on the tool. ie paint brush.
I grew up in a family that we did everything ourselves. Grandfather was a carpenter, so I learned a lot from them on the farm building stuff there as a teenager, but I also joined some forums like Mike Holmes. There is a wealth of information there. When the wife and I did our reno’s last year and we did not know something I would turn there. I also have connections to the building industry so that helped as well. I would not suggest Home Depot for information. Some of them have some knowledge, but most don’t.
Some things that you don’t know you should still try like drywall and mudwall but other things you unsure of should be left for pro’s like electrical.
And don’t rush the job and cut corners!
Good luck and enjoy your new home
July 14th, 2009 at 3:43 AM
Congrats on the purchase of your home Crikey!
July 14th, 2009 at 10:36 PM
Thank you, Heather.