The Calgary housing market is “likely to get more attention,” predicts an RBC report on housing affordability released Thursday.
That Calgary homes have become relatively cheap hasn’t really made headlines over the past year — and unsurprisingly so. After all, low prices or not, few Canadians would want to buy a house in a recession-stricken economy.
But Alberta’s economy is showing signs of recovery, noted RBC. And the fact that homes in Calgary haven’t been this affordable since the mid-1980s may soon start to turn heads, suggest economists Craig Wright and Robert Hogue.
RBC measures affordability as the portion of median pre-tax household income it takes to cover the cost of mortgage payments, property taxes and utilities, based on an aggregate average of market prices for detached houses, condos and other types of homes. In Calgary, where the median home price stands at $478,500, that measure currently sits at 33.8 per cent, well below its long-run average of 40.3 per cent.
In Canada as a whole, housing affordability is 44.2 per cent, although the figure is skewed by Vancouver, Toronto and surrounding areas. RBC calculated Canada’s median home price as $458,100.
Signs of revival in Alberta
The RBC report sounded a positive note about Alberta’s economy.
Signs of revival, the bank noted in a separate paper, include small increases in wholesale and retail sales, some slim employment gains since mid-2016 and a positive signal from the housing market itself: the fact that the trend in resale activity has stopped declining.
The recent rebound in oil prices and Ottawa’s approval of Kinder Morgan’s Trans Mountain pipeline in November bode well for the provincial economy, RBC noted. The banks expects GDP to grow at 2.1 per cent in 2017 and 3.3 in 2018.
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However, RBC economists warned, “we expect the economic turnaround to be gradual and uneven—which would be a departure from Alberta’s typical ‘boom-bust’ pattern exhibited in past economic cycles.”
The bank expects the province’s unemployment rate to edge up from 8.1 in 2016 to 8.4 this year, before declining to 7.5 per cent in 2018.
In Canada, the jobless rate stood at 6.6 per cent in February.
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What the rest of the RBC report says
Soaring home prices mean it hasn’t been this hard to buy a house in Toronto since 1990, RBC’s housing report noted. A typical Toronto family would have to spend a whopping 64.6 per cent of its gross income on housing costs, if it were to buy a home at current market prices. The median home price was $760,300.
“The last time affordability was in such a state (in 1990), Toronto’s housing market subsequently fell into a deep and prolonged slump,” RBC’s Wright and Hogue wrote.
“Left unchecked, this situation will get worse, putting at high risk Canada’s largest housing market. Further policy intervention would be prudent to avoid a 1990s-style outcome.” they added.
In Southern Ontario, markets like Hamilton and St. Catharines also showed evidence of eroding affordability.
Vancouver, where the median home price is $999,900, is still by far the most unaffordable city in Canada, with housing accounting for 84.8 per cent of median incomes. That, however, was an improvement from previous years.
Sales of existing homes have slowed down sharply since 2016, something the bank attributed in part to provincial measures to cool down the market. For condos, however, affordability actually eroded slightly during the period.
In nearby Victoria, where the median home price has reached $672,900, affordability was 55.1 per cent in the fourth quarter of 2016, up 6.6 percentage points from 2015.
Editor’s Note: The paragraph below has been modified. A previous version made an incorrect reference to Newfoundland’s capital St. John’s.
Saint John, N.B. remained the most affordable city in RBC’s ranking. Mortgage payments, property taxes and utilities here take up only 25.8 per cent of median incomes. The median home price was $213,300.
“It is more affordable to own a single-detached home in Saint John than a condo apartment in many cities in Canada,” RBC noted.