Shrugging off concerns last year that the housing market would falter, Ontario’s resale activity accelerated and property values resumed appreciation in the fourth quarter of 2010, according to the latest Housing Trends and Affordability Report issued today by RBC Economics.
“Ontario’s slowdown in activity last spring and summer largely reflected transitory factors, including the introduction of the HST and changes in mortgage lending rules which nudged demand forward to the start of the year,” said Robert Hogue, senior economist, RBC. “The silver lining of this slowdown is a slight improvement in affordability, which at this point plays a neutral role in housing demand as affordability levels sit close to their long-run average.”
The RBC Housing Affordability Measures for Ontario, which capture the province’s proportion of pre-tax household income needed to service the costs of owning a home, edged lower for the second consecutive quarter for most housing categories in the fourth quarter with the exception of two-storey homes, which became marginally less affordable amid notable price gains.
The measure for the benchmark detached bungalow declined to 38.7 per cent (down 0.3 percentage points from the previous quarter) and the standard condominium to 27.3 per cent (down 0.2 percentage points), while the standard two-storey home rose to 45.1 per cent (up 0.1 percentage points).
The RBC report notes that the Toronto-area market sustained a rebound in activity in the latter part of 2010, following a steep fall in the spring and early summer from earlier unsustainably high levels.
“Toronto’s market has climbed its way back toward more sustainable activity. These improvements confirm our view that earlier weakness had more to do with transitory factors than permanent evaporation of demand,” said Hogue.
Owing primarily to lower mortgage rates, Toronto-area homebuyers enjoyed improved affordability in most housing categories with measures generally standing close to long-term averages in the fourth quarter. RBC Measures eased for both condominium apartments and detached bungalows (down 0.6 and 0.5 percentage points respectively). On the other hand, two-storey homes rose by a modest 0.3 percentage points.
Ottawa’s housing market saw fairly sizeable price increases which pushed homeownership costs up; however, savings generated by lower mortgage rates provided some offset.
“Contrary to the general trend among Canada’s large cities, Ottawa did not experience an improvement in affordability,” noted Hogue. “Nevertheless, waning affordability did little to dampen enthusiasm of homebuyers with home resales trending to strong levels experienced prior to the wild swings in 2009 and early 2010.”
Ottawa’s affordability has deteriorated to levels likely to pinch demand going forward. RBC Measures for Ottawa are above their long-run averages for all housing types in the area. The measure for detached bungalows and condominium apartments both rose by 0.5 percentage points, while the measure remained unchanged for two-storey homes.
Elsewhere in the country, a majority of provinces saw improvements in affordability in the fourth quarter. Only the standard two-storey benchmark became less affordable in Ontario and Quebec, as did the standard condominium apartment in Quebec and the Atlantic region.
RBC’s Housing Affordability Measure for a detached bungalow in Canada’s largest cities is as follows: Vancouver 68.7 per cent (down 0.4 percentage points from the last quarter), Toronto 46.8 per cent (down 0.5 percentage points), Montreal 41.3 per cent (down 0.4 percentage points), Ottawa 38.7 per cent (up 0.5 percentage points), Calgary 34.9 per cent (down 3.1 percentage points) and Edmonton 31.0 per cent (down 2.4 percentage points).
The RBC Housing Affordability Measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market in Canada. Alternative housing types are also presented including a standard two-storey home and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.