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Greater China’s property market crisis and the challenges it poses for lenders will be on full display on Monday, when embattled developer China Vanke Co. and the region’s biggest banks report earnings.
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Jun 23, 2022
By Noah Zivitz
New data released by RBC Economics Thursday suggests it's essentially impossible for many Vancouver residents to carry the cost of a home without going into debt.
According to analysis by RBC Assistant Chief Economist Robert Hogue, mortgage payments, property taxes, and utility bills for a benchmark single-family detached home in the Vancouver area would have chewed up 111.1 per cent of median pre-tax household income in the first quarter. That was up 21.9 per cent from a year earlier, and a nearly 10 per cent surge from the fourth quarter of last year.
At a national level, RBC estimates 54 per cent of pre-tax household income would have been needed to cover the cost of home ownership across all property types in the first quarter. Hogue said that's the worst affordability in about 30 years, and warned it's only going to get worse. In the country's largest housing market, RBC estimates 74.9 per cent of income was needed in the Toronto area. That was up 5.5 points from the previous quarter and 16.7 from a year earlier.
"The Bank of Canada’s ‘forceful’ interest rate hiking campaign will further inflate ownership costs in the near term, putting RBC’s national affordability measure on a path to worst-ever levels," he wrote in the report.
Hogue said rate hikes will be particularly painful for homeowners in the country's priciest markets. "Affordability to get even uglier in Vancouver, Toronto and Victoria," he wrote; for example, he estimates a one-point rate increase would cause RBC's gauge of housing affordability to deteriorate by 8.8 percentage points in Vancouver, compared to a worsening of 5.5 percentage points for the national average.
Hogue said he thinks recent wage gains will help improve affordability, "but we think the factor most likely to move the needed is a price correction." And on that front, he said RBC expects the national benchmark home price will drop more than 10 per cent from peak to trough this year.
St. John's can lay claim to being Canada's most affordable housing market. RBC estimates 23.1 per cent of median pre-tax household income was needed to cover home ownership costs in that city during the first quarter. Regina wasn't far behind at 24.6 per cent.
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