Housing affordability across Canada remained relatively stable in Q2, according to the recent Housing Trends and Affordability Report from RBC Economics Research. But this excludes the Toronto and Vancouver markets, where prices are set to multi-year highs. In these markets, and particularly for single detached homes, strong price increases have increased the gap between these markets and the rest of Canada.
“The Toronto and Vancouver markets really stand out because of their elevated and rapidly rising prices, and they are the main factors contributing to further modest erosion in affordability overall in Canada,” said Craig Wright, senior vice-president and chief economist at RBC, in a press release. “Outside of Toronto and Vancouver, affordability levels are close to, or slightly better than, long-term averages, which suggests that housing affordability remains fairly neutral in most of Canada with limited signs of undue stress being exerted on homebuyers.”
Regional affordability trends are expected to remain stable. According to RBC, affordability in Toronto and Vancouver will only degrade further as upward price pressure is reinforced with tight demand-supply conditions. Across the rest of Canada, balanced supply-demand indicates slower-rising home prices and steadier affordability.
“A significant rise in interest rates could change this two-tiered picture by negatively affecting affordability across all regions in Canada, and this could pose a risk for the entire housing market,” said Wright. “However, we expect policy interest rates to remain low in the coming year. This suggests that any near-term risk would stem from weakness in the labour market which has fortunately been holding up well to date.”
RBC foresees Canada’s housing market will count 2015 as one of its best years on record, despite the drop in oil prices impacting Canada’s economy and an increase in condominium completions. RBC expects home resales to increase by five per cent to 505,400 units across Canada, especially in British Columbia, Ontario and Quebec. Historically low interest rates are providing motivation for housing demand.
RBC expects home prices will increase by 4.6 per cent this year, remaining steady with 2014’s rate of 4.8 per cent. These numbers are not far off from long-term averages, indicating that current conditions are within historical norms.