Housing became less affordable across country: RBC

(CBC) - Housing became slightly less affordable for Canadians in the last quarter of 2005 as pay increases failed to keep pace with rising home prices and higher mortgage and utility costs, according to RBC Economics.

The Toronto-based bank on Wednesday released its quarterly housing affordability index, which measures the proportion of pre-tax income needed to service the costs of owning a home.

The index found the largest drops in affordability were in British Columbia, Manitoba and Alberta.

Those three provinces also continue to experience double-digit annual increases in home prices, while the pace of appreciation has cooled in the rest of Canada for almost all types of housing.

"The mild deterioration in housing affordability is likely to lead to a moderately slower pace of demand for new and existing homes in 2006 and 2007," said Derek Holt, assistant chief economist at RBC.

"But it will be a controlled slowdown in the housing markets as both new supply and demand are expected to cool simultaneously."

Holt predicted borrowing rates would continue to increase.

But he said he expected the rates would keep stimulating the economy in 2006 and 2007, with job markets remaining strong.

During the fourth quarter, the index found the most affordable type of housing was the standard condo with an index of 25.7 per cent, followed by a standard townhouse at 30.1 per cent and a detached bungalow at 37 per cent.

The least affordable was a two-storey house at 43 per cent.

Vancouver remained the least affordable city for housing, with a detached bungalow eating up 57.5 per cent of pre-tax household income, compared with:
- 42.7 per cent in Toronto.
- 35.6 per cent in Calgary.
- 34.1 per cent in Montreal.
- 33.1 per cent in Ottawa.

RBC said a slowdown in new home construction over the next two years would be partly offset by growth in renovation spending, which has risen by 50 per cent since 2000.

It forecasts renovation spending, which exceeded $26 billion in 2005, will remain strong as homes built during the 1980s boom continue to enter their prime renovation years.

© the CBC, 2006