RBC Economics is sounding the alarm on Canada’s runaway housing markets as home ownership costs reach extreme levels in Vancouver.
“Soaring prices in Vancouver and, to a lesser extent, Toronto fuel genuine concern about overheating in these markets,” RBC Chief Economist Craig Wright wrote in a report published on Tuesday.
RBC’s aggregate measure of Canadian housing affordability rose 1.2 percentage points in the second quarter to 42.8 per cent, representing the most substantial deterioration in affordability in six years.
The obvious culprit was Vancouver, where affordability worsened 6.1 percentage points to 90.3 per cent. Toronto’s measure of affordability rose 2.1 percentage points to 60.2 per cent.
RBC tallies affordability based on how much household income is required to cover the costs of home ownership, including mortgage payments, property taxes and utility bills. A higher number represents reduced affordability.
“Undoubtedly, the Vancouver and Toronto markets get some heat from favourable economic fundamentals,” according to Wright, “however, robust local fundamentals, alone, cannot justify the full extent of the price escalation in Vancouver.”
While the two hottest markets helped drive national home ownership costs, not all cities saw affordability deteriorate. Indeed, RBC’s measure of affordability improved in Calgary, Saint John and St. John’s.
RBC reckons there could be some improvement ahead in Vancouver and Toronto, but Wright isn’t expecting an overnight fix to the affordability crunch.
“Signs of cooling resale activity have emerged in Vancouver and, more tentatively, Toronto …This is unlikely to help near-term affordability given current demand-supply tightness; however, some relief could come by late 2016 or early 2017.”