RBC Housing Report Highlights Toronto’s “Deteriorating” Affordability

RBC just released its Housing Trends and Affordability report, outlining the performance of Canada’s housing market during the first quarter of 2014. Highlighting Toronto’s rising prices and decreasing inventory, the figures are not surprising.

As far as Toronto’s resale market goes, RBC pointed out that bidding wars may seem like a sign of a “hot” housing market, but when the wars are because of a lack of selection, then it’s just not the case. Between the fourth quarter of 2013 and the first quarter of 2014, resale transactions across Canada decreased 4.8 percent, partially because of the severity of last winter.

Overall, home sales in Ontario decreased 7.5 percent, dropping to a level more than 7 percent below the 10-year average. Again, RBC points a finger at poor weather and a lack of listings.

“Ontario’s affordability measures continued to deteriorate in the first quarter with levels for both bungalows and two-storey homes at 24-year highs. And while barely rising in recent years, affordability for condominiums was not much below its multi-decade peak,” says Craig Wright, senior vice-president and chief economist, RBC. “These challenging affordability trends make owning a home - and especially a detached home in major markets such as Toronto - a bigger stretch for most homebuyers in Ontario.”

The RBC affordability measures “capture the province’s proportion of pre-tax household income needed to service the costs of owning a home at market values.” So when the measures increase, that means affordability is deteriorating.

In Ontario, the affordability measures increased 0.4 percent to 51 percent for two-storey homes, eased 0.3 percent to 29.4 percent for condominiums, and bungalows remained unchanged at 44.9 percent.

Now compare those numbers to the Toronto area. For a two-storey home RBC’s measures increased 1.4 percent to 65.3 percent. Condominiums rose slightly by 0.1 percent to 34.2 percent, and bungalows increased by 0.2 percent to 56.1 percent.

This means that if you’re an “average” homebuyer who wants to buy a two-storey home in Toronto, it will cost you about 65.3 percent of your annual household income. So, in Toronto and the rest of Ontario, condos are currently the most affordable option.

We are already a month into the second quarter of 2014 and Trimart has reported that there were 22 new site openings in April, and last week, they stated that the Greater Toronto Area’s (GTA) year-over-year supply has stayed consistent at 14,000 units for the last three months.

Will the GTA’s inventory see an influx this spring/summer? Time will tell, but from our perspective, there are many new releases and communities scheduled for June and July, so we will not be surprised if prices and inventory levels begin to stabilize through the second and third quarters.