Housing affordability trend turns on lower rates and higher incomes: RBC
Here are a few of the highlights from RBC’s recent Housing Trends and Affordability study released yesterday.
As we head into the all-important spring season, the ongoing cyclical correction will put the entire housing sector to the test. However, while the pain will likely persist for many homeowners and industry participants, there are encouraging signs on the affordability front in light of developments through the fourth quarter of 2008. The sharp deteriorating trend in RBC’s affordability measures from about 2004 to late 2007-early 2008 has reversed in the past year. At the national level, the RBC measures improved 2.3 to 3.5 percentage points between the final quarters of 2007 and 2008, with markets in Alberta and British Columbia showing more sizable repair (although this largely reflects the extent of the earlier impairment).
The improvement can be primarily credited to monetary policy during that period because lower mortgage rates account for the largest portion of the reversal in RBC’s measures in almost all major urban areas in Canada except for cities in Alberta. Rising family income also contributed positively across the country.
Only in Calgary, Edmonton and Vancouver was price a constructive factor in the year-over-year change – although price has played a wider beneficial role in recent more quarters. Higher utilities and property taxes have remained a modest undermining factor.
Going forward, low mortgage rates and persisting downward pressure on housing prices will continue to help repair affordability, but slowing income growth will act as a restraint.
Saskatchewan — Boom is over but no bust
The housing boom is officially over in Saskatchewan. Market activity has cooled considerably from the frenzied pace of 2006-early 2008 and prices have begun to come off the heights they reached during their spectacular run-up. However, the post-boom period so far has been a mostly orderly affair thanks to the province’s largely supportive economic and demographic fundamentals (Saskatchewan’s economy is the strongest in Canada and is forecast to remain so during 2009). These positive factors overshadow extremely poor affordability levels that have resulted from the spike in prices of recent years. While lower mortgage rates, income gains and, in more recent quarters, lower prices have helped improve affordability in the past year, RBC’s measures remain at worrisome levels compared to historical averages. This represents an element of risk if the province’s economic performance is weaker than expected.
Good news, bad news for home buyers: Star Phoenix
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Norm Fisher
Royal LePage Saskatoon Real Estate
4 comments so far. We'd love to hear your thoughts.
April 25th, 2009 at 1:26 PM
“These positive factors overshadow extremely poor affordability levels that have resulted from the spike in prices of recent years. While lower mortgage rates, income gains and, in more recent quarters, lower prices have helped improve affordability in the past year, RBC’s measures remain at worrisome levels compared to historical averages.”
Bizzaro World strikes again.
(I don’t want Saskatchewan to fail. I just want common-sense and reasonable price increases to return to this province. I’m still waiting…)
; )
April 25th, 2009 at 1:27 PM
Robin,
I found it interesting that they use the word “repair” when discussing improving affordability. Of course, the implication being that something became broken.
Patience. The full extent of the improvement in affordability in Saskatchewan is not apparent in this study at Q4/08, but it quite literally costs hundreds of dollars less to own a home here than it did a year ago. It’s my understanding that it often takes longer to come down but some good progress has been made.
April 25th, 2009 at 1:27 PM
Hi Norm,
I’m from Saskatoon, live out east at the moment, and read your blog regularly. Thank you for providing such valuable information, it is an excellent resource. Actually, it’s so good that I think you could easily build a profitable business by creating a template, branding it, and licensing it to realtors in cities everywhere.
I had a conversation last night that may be of interest.
While walking along the Ottawa River last night a man approached my sister and I to ask for directions to a hotel. A friendly bus driver had told him it was four blocks east, when it was really four blocks west of the bus stop! He kept his humour when we told him this, then asked if we would show him where it really was. As we walked and talked, he said he was in town searching for work. In fact, he had also been out west job-hunting, including a stop in Saskatoon. His report was frustrating to hear, because he said that though jobs were available, to own a quality home in Saskatoon of the size required for his family was unaffordable in relation to his potential income. I didn’t ask about his income requirements, but the houses he was looking at were above $400,000. Even in the current economic climate where jobs are few and far between, he chose to keep looking instead of moving into what he considered a financially imbalanced living/working situation in Saskatoon.
The bright side of the story is that there are jobs available in the prairies, and people are coming in search of them. I just hope those who arrive with skills to contribute will find Saskatoon to be a great place for their families to thrive, financially and otherwise, as well as a great place to simply find work.
April 25th, 2009 at 1:28 PM
Hey Josh,
Thanks for the kind feedback. I appreciate your visits and the comment.
I don’t doubt what you’re saying. While affordability has improved a fair bit over the past year, clearly Saskatoon continues to be one of Canada’s most expensive cities in which to buy a house. Renting isn’t an affordable option for many either. We have much to be thankful for at this particular time but there’s no doubt that affordable housing is an issue here right now and it really has been since the spring of 2007. All that said, it’s nice to finally be back to a period of improvement as opposed to further deterioration.
Thank you again.