Canadian housing affordability continued to deteriorate in the first three months of the year as rising costs outstripped increases in incomes, RBC Economics said Thursday.
"While property taxes and utilities increased this past quarter, most of the deterioration in affordability was driven by a surge in home prices and rising mortgage rates," said Derek Holt, assistant chief economist at RBC.
After three quarters of affordability improvement in 2005, housing affordabililty began dropping in the final three months of last year as house prices and mortgage costs rose.
The bank's housing affordability index measures the proportion ofpre-tax household income needed to carry the costs of owning a home, with a standard 25 per cent down payment and a mortgage amortized over 25 years with a five-year fixed rate. The index tracks the costs of owning an average condo, townhouse, detached bungalow and two-storey house in urban centres across the country, based on the median income.
In its quarterly survey, the bank said a condo required 27.4 per cent of pre-tax income in the first quarter of this year, up from 25.7 per cent in the fourth quarter of 2005.
Increases in the national average costs for townhouses, bungalows and two-storey homes were also seen. In the first three months of this year, a townhouse required 31 per cent of income, while a bungalow required 38.8 per cent, and a two-storey took 44.5 per cent.
Affordability still worst in B.C.
RBC said British Columbia recorded the worst affordablility deterioration in the country. The bank said its housing affordability index for the province is at or near record highs in every class except for condos. For example, in Vancouver, a detached bungalow stood at 64.4 per cent.
Albertaâs house price gains were much stronger than British Columbiaâs, but homes in Alberta remained more affordablebecause of a lower average starting price and a drop in utilities and property taxes.
The bank says rising prices for resale homes have driven much of the drop in affordability, but added that prices for new homes, which had been relatively stable, are now starting to accelerate.
"The continued upward pace of resale prices and mortgage rates into the second quarter of 2006 does not bode well for near-term affordability," Holt added.