Housing affordability is at a “crisis” level in Vancouver, with home ownership costs at their highest ever, according to a new report.
The Housing Trends and Affordability report from RBC economists focuses on the housing market in the first quarter of 2018.
In Vancouver, 87.8 per cent of a household’s income is needed to cover ownership costs in the city.
That’s a record high for any market in Canada, according to the report.
Halfway across the country in Toronto, that number falls to only 74.4 per cent — which is still a “tremendous challenge” for Torontonians, despite the fact that it’s gotten better in the past two quarters.
For comparison, the average share of income needed to cover home ownership costs in Canada is 48.4 per cent.
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The report says affordability has fallen slightly throughout Canada in the first quarter of 2018, reversing gains made in 2017.
That’s likely due to higher interest rates, which have gone up three times in recent years and therefore boosted monthly home-ownership costs.
“With the prospect of more interest rate hikes in the period ahead, there’s a definite risk that affordability will erode further in the coming year,” Craig Wright, senior vice-president and chief economist at RBC, said in a release.
“The odds of this occurring will also depend on the degree to which household income increases.”
It’s the first time housing affordability has fallen in 10 quarters, the report states.
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Saskatoon, Ottawa, Halifax and St. John’s all saw affordability fall as well, but they are still within their averages.
But Montreal saw an increase — its third in a row — bringing the city to its lowest affordability since 2011.
It’s not going to get better any time soon, either. “The prospect of more interest rate hikes in the period ahead poses material risk of further affordability erosion,” the report says.
The next rate hike could be as soon as next week, at the Bank of Canada’s policy meeting.
“Interest rates will be crucial to the outlook for housing affordability in the year ahead,” Wright said. “Our view is that the Bank of Canada will proceed with a series of rate hikes that will raise its overnight rate from 1.25 per cent currently to 2.25 per cent in the first half of 2019. This would have the potential to stress housing affordability significantly.”
Toronto and Winnipeg are the only markets that saw affordability grow, thanks to government policies and a cooling market respectively.