A drop in the price of single detached homes in Toronto has led to a partial recovery of housing affordability across Canada, but prices are likely to re-accelerate after spring, according to a report by Royal Bank of Canada.
“Our view is that home prices are getting close to the bottom in the Toronto area, so this affordability and this relief of affordability is likely to be short-lived,” Robert Hogue, senior economist at RBC Economic Research said.
RBC’s nationwide aggregated estimate to measure housing affordability showed a 0.2 per cent decline, reaching 48.3 per cent in the final quarter of 2017. In the Greater Toronto Area, the measure dipped 2.3 percentage points to reach 75.1 per cent. Downward movement in the measure represents more attractive prices.
The rollback “is only a small part” of the 8.2 percentage point increase in mortgage cost over the past nine quarters, the report found.
Affordability continued to deteriorate in B.C. and in Vancouver in particular, where affordability is effectively the worst ever recorded in Canada, according to RBC.
“It’s not surprising to see the provincial government in B.C. to impose new measures to cool the market down in their latest budget, but it remains to be seen whether these measure have a significant impact,” Hogue said.
Montreal recorded its ninth increase in the affordability measure out of the past 10 quarters, taking “the shine off its reputation as an affordable market,” Craig Wright, senior vice-president and chief economist at RBC, wrote in an accompanying release.
Housing forecasts in Edmonton remain among the best in Canada, according to the study. Winnipeg is dealing with some erosion on housing affordability, and Ontario as a whole is in good shape. Buyers in Quebec City are “firmly in the driver’s seat,” the release said. The aggregated estimate inched just 0.1 percentage point higher to reach 32.7 per cent in the final quarter.
In Toronto, measures such as the Fair Housing and Affordability Plan helped ease pressure, but that’s not going to last, Wright adds. Pressures are going to re-emerge as long as the disconnect between demand and supply remains.