Housing trends across provinces largely counteracted one another in the first quarter of 2015, leaving affordability relatively unchanged at the national level compared to late-2014, according to the latest Housing Trends and Affordability Report issued today by RBC Economics Research.
RBC says that mortgage rate declines that took place earlier this year contributed to improved levels of affordability in many markets and housing categories where home price increases were subdued, but that deterioration was noted in markets with stronger price gains.
“Canadian markets heavily associated with the oil and gas industry – Calgary and Edmonton in particular – were impacted earlier this year by the plunge in oil prices which tipped the market in favour of buyers due to softening home prices and ownership costs,” said Craig Wright, senior vice-president and chief economist, RBC. “At the other end of the spectrum, solid price increases continued to erode housing affordability in Toronto and Vancouver which remain Canada’s hottest markets.”
Following a temporary slowdown over the harsh winter, home resales picked up smartly in the spring with resales rising 11.2 per cent between February and May to 521,400 units nationally – 11.1 per cent above the 10-year average. RBC says that demand continues to be strongest in Vancouver and Toronto, though there were signs that demand in some previously soft markets, including Montreal and Ottawa, began to pick up.
RBC anticipates Canada’s home resales will rise modestly by 1.5 per cent to 488,500 units in 2015, up from 481,200 units in 2014. The increase mainly reflects strength in British Columbia and Ontario, with mild gains in other oil-consuming provinces also making a contribution. The forecast expects partial offsets from declines in Alberta (down nearly 21 per cent) and Saskatchewan (down close to 13 per cent).
Contrasting regional affordability pictures across Canada are likely to continue in the near term, RBC says, with balanced demand-supply conditions in the majority of local markets supporting modest price increases and somewhat stable levels of affordability overall.
“It’s likely that we’ll see small price declines in the markets dependent on oil, which suggests that home ownership costs may fall further in Alberta, Saskatchewan and possibly markets in Atlantic Canada as well,” said Wright. “We also anticipate strong price momentum to further erode affordability in Toronto and Vancouver, particularly in the single-detached home segments.”
RBC points out that the eventual normalization of monetary policy, which is expected to begin in Q2 2016, could adversely impact affordability levels across Canada. Wright comments: “Exceptionally low interest rates have been a key factor keeping housing affordability levels in a largely manageable state in recent years. The knock-on effect of the anticipated rise in rates would be most visible in high-priced markets.”
The report indicates that affordability generally remains neutral in Canada, with limited signs of stress being exerted on home buyers outside Vancouver and Toronto. RBC’s measures are still quite close to their long-term averages, suggesting that current conditions are within historical norms.