Toronto eclipses Vancouver as country’s least affordable housing market

RBC measure shows Toronto area affordability is down to 1990 levels when interest rates were in the double digits.

Toronto’s screaming real estate prices have made it the least affordable market in the country, with the relatively scarce supply of detached housing one of the leading stressors, according to RBC.

The bank’s aggregate affordability measure was up 3 points in Toronto in the last quarter — rising to 63.7 per cent, making it the least affordable quarter since spring 1990 when interest rates were around 14 per cent.

A higher measurement means lower affordability on the RBC scale.

Nationally, the index hit levels similar to the fourth quarter of 2008, rising 1.3 per cent to 44.3 per cent, said the bank’s Housing Trends and Affordability report.

Housing affordability in the Toronto area, which has now surpassed Vancouver on the RBC measure, is expected to deteriorate further next year.

RBC is predicting a continued increase in Toronto-area home prices, but at a much slower rate than this year, said senior economist Robert Hogue.

He said the bank expects prices to rise between 5 and 10 per cent next year compared to 14 per cent, the increase RBC expects for this year overall.

“Poor and still-rapidly deteriorating affordability (especially for detached homes) does not appear to be a significant impediment for buyers at this stage,” said Wednesday’s report.

Hogue doesn’t expect the government will step in immediately with further cooling measures for the market. It will wait and see the impact of October’s more rigorous mortgage qualification requirements and its new mortgage insurance requirements, introduced last month for low-ratio mortgages.

The latter move may not look like a big deal, but it changes things, particularly for non-bank lenders, he said.

“It will alter the type of funding that they can get in the marketplace. So December might start to reflect some of that. It’s a cumulative impact of all those changes that will matter,” said Hogue. “Into spring we’ll have a better sense of what the impact has been and will be on a permanent basis.”

Royal LePage CEO Phil Soper points to the drop in the Vancouver market following the introduction of a foreign buyers’ tax as a reason Ottawa should go slow in introducing more cooling measures.

“When you’re playing with the perceived value of their homes so dramatically, particularly in the case of Vancouver, where they’re going down, it’s not popular policy,” he said.

“If homes prices drop rapidly, which is what happens if you try to interfere in the market to too great an extent, it sends shockwaves through the whole economy,” said Soper. “It’s not just the home that doesn’t trade — it’s the renovations that don’t occur, the lawyers, the accountants that have fewer clients.”

Although he expects Toronto to continue outpacing other Canadian markets, Soper expects there will be improvements in Quebec, the Maritimes and Alberta with mid-single-digit price growth.

In Toronto, he said, “I can’t see it being single digits. I think we’re looking at double-digit price increases,” he said.

Statistics released by Canada’s national housing agency on Wednesday showed that nearly 13 per cent or 1.4 million urban households were considered to be in core housing need. That means their housing was inadequate or unsuitable and cost more than 30 per cent of the household’s before-tax income.

In Ontario the number of households in need was about 16 per cent, according to Canada Mortgage and Housing Corporation’s analysis based on 2014 Statistics Canada data.

But that figure has remained more or less the same since 2012, whereas the number dropped very slightly in the other high needs provinces of British Columbia and Nova Scotia.

By TESS KALINOWSKI – Transportation Reporter
Wed., Dec. 21, 2016 – THESTAR