Vancouver Home Affordability has Biggest Drop in 26 years
Housing affordability in Vancouver had its biggest drop in 26 years during the first half of the year, but signs of cooling are beginning to show up there, and in Toronto, according to a new report from Royal Bank.
In the bank’s Housing Trends and Affordability Report, researchers say surges so far this year mark the biggest drop in affordability during a six-month period in the city in 26 years. The percentage of median pre-tax household income necessary to service the mortgage, property taxes and utilities for all categories of homes, hit 90.3 per cent for Vancouver by the end of June after surging by 6.6 percentage points in the first quarter and 6.1 percentage points in the second quarter.
These costs are based on the average market price for single-family detached homes and condos, as well as for an overall average of all housing types.
“Clearly, owning a single-detached property at current prices in Vancouver is a luxury that very few locals can afford,” the bank said.
In Toronto, the overall cost-of-ownership measure hit 60.2 per cent of median pre-tax income at the end of June, mainly due to a run-up in single-detached home costs. RBC said the level of Toronto’s aggregate affordability measure was the highest since the third quarter of 1990.
While housing affordability in other major Canadian cities generally eroded modestly in the latest period, some cities, including Calgary, Saint John, and St. John’s saw some improvement.
RBC said most other major cities saw only a modest decline in housing affordability during the second quarter, while the cities of Calgary, Saint John, N.B., and St. John’s, N.L., bucked the trend with a reduced cost of ownership. Overall, the Canadian cost of ownership was equal to 42.8 per cent of median family pre-tax income in the second quarter, up 1.2 percentage points since the prior quarter and 2.9 percentage points since the second quarter of 2015.
TD Bank said Vancouver has started what is expected to be a modest correction, which will be reinforced by the recent implementation of the land transfer tax on non-residents.
“Barring the levying of a similar tax, foreign investors could switch focus to the more affordable Toronto market,” TD said.
Sales activity in Vancouver is expected to drop by 10 to 15 per cent over the next six months, TD said, and it projects prices will decline by about 10 per cent in the region by mid-2017, before stabilizing later in the year.Toronto, meanwhile, is forecast to see some continued home price gains.