Calgary still has better housing affordability than other major Canadian centres

Housing affordability in Canada has become a key talking point these days with growing concerns about how people will be able to afford a place to live.

But when it comes to affordability, by Calgary does quite well in comparison with the other major centres in the country.

That was evident in the most recent Housing Trends and Affordability quarterly report by RBC Economic Research.

The financial institution regularly looks at the share of income a household would need to cover ownership costs. The Canadian average of 14 major urban markets was 48.4 per cent.

Of course, Vancouver and Toronto continue to be troubling spots in the country with the affordability measures at 87.8 per cent and 74.2 per cent, respectively. And Montreal came in at 43.7 per cent.

Calgary was 43 per cent.

The RBC Housing Affordability Measures show the proportion of median pre-tax household income that would be required to service the cost of mortgage payments (principal and interest), property taxes, and utilities based on the average market price for single-family detached homes and condo apartments. The affordability measures are based on a 25 per cent down payment, and a 25-year mortgage loan at a five-year fixed rate.

The report by RBC’s Craig Wright, chief economist, and Robert Hogue, senior economist, says Calgary is not as rosy as it used to be.

“Housing affordability hasn’t been a real issue for close to 10 years in Calgary but the picture isn’t quite as rosy as it was just three years ago,” say the economists. “Tough economic times first undermined local buyers’ ability to own a property as household income fell during the provincial recession of 2015-2016. More recently, rising interest rates drove ownership costs higher despite home prices largely stagnating in the area.

“RBC’s aggregate measure for Calgary tracked a slight upward trend since 2015, including in the first quarter when it rose by 0.5 percentage points to 43.0 per cent. This still shouldn’t be a big issue though buyers now also have to contend with the new stress test. These factors contributed to a 10 per cent drop in home resales in the first quarter.”

For Calgary, the aggregate price in the first quarter of this year was $506,300 and the affordability measure rose 1.3 per cent year-over-year. The average since 1985 was 41.5 per cent.

For single-detached homes, the price of $558,900 had an affordability measure of 47.4 per cent, up 1.8 per cent from a year ago. The average measure since 1985 was 44.5 per cent.

And for condominium apartments, the affordability measure in the quarter was 26.7 per cent which was down 0.3 per cent from a year ago and also down from the long-term average of 27.3 per cent. The price for homes in this category in this quarter was $289,400.

Nationally, RBC says higher mortgage rates were the main factor returning RBC’s measure to a multi-decade high.

“The likelihood of further interest rate increases in the period ahead is poised to make the affordability situation even more challenging for some of Canada’s markets,” says the RBC report, adding that it expects the Bank of Canada will proceed with a series of rate hikes that will raise the overnight rate to 2.25 per cent in the first half of 2019.

“This would have the potential to stress housing affordability significantly. We estimate that, everything else remaining constant, a 100- basis-point increase in mortgage rates would lift RBC’s aggregate affordability measure for Canada by about four percentage points,” says RBC.

“On the positive side, growing household income will provide some offset. A recent pick-up in wage gains bodes well in that regard. Cooler housing markets and a leveling-off of property values in some areas also could help a bit, albeit to a limited extent. The bottom line is that we don’t expect affordability conditions to get any easier in Canada in the period ahead. At best they will remain unchanged. Most likely, though, they will become more challenging.”

 

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