BC homes least affordalbe


Tuesday, November 18th, 2003

Supply has been unable to meet demand, pushing prices sharply higher

Gerry Bellett
Sun

Prices represent average monthly payments for principal, interest, taxes and utilities. The benchmark house price assumes it is a detached bungalow, a typical target home for first-time buyers. Financing calculations assume a 25-per-cent down payment and 25-year mortgage loan at a five-year fixed rate. Montreal: $1,094. Value: $155,165

This Surrey house is listed on MLS at $319,000, which represents a typical B.C. home in a study of home affordability by RBC Economics.

Prices represent average monthly payments for principal, interest, taxes and utilities. The benchmark house price assumes it is a detached bungalow, a typical target home for first-time buyers. Financing calculations assume a 25-per-cent down payment and 25-year mortgage loan at a five-year fixed rate. Vancouver: $1,914. Value: $320,637

Prices represent average monthly payments for principal, interest, taxes and utilities. The benchmark house price assumes it is a detached bungalow, a typical target home for first-time buyers. Financing calculations assume a 25-per-cent down payment and 25-year mortgage loan at a five-year fixed rate. Calgary: $1,436. Value: $228,500

Prices represent average monthly payments for principal, interest, taxes and utilities. The benchmark house price assumes it is a detached bungalow, a typical target home for first-time buyers. Financing calculations assume a 25-per-cent down payment and 25-year mortgage loan at a five-year fixed rate. Toronto: $1,874. Value: $302,187

It’s harder for the average person to afford a home in British Columbia than anywhere else in Canada, according to a study by RBC Economics.

The study released Monday shows B.C. has the highest housing affordability index in the country. The index measures the portion of pre-tax income a household must set aside each month to cover the cost of owning a home.

The higher the index, the more difficult it is to afford a home.

In B.C. it costs the average household 41.2 per cent of pre-tax income — or $1,604 a month — to pay for a home, compared to the national average of 31.8 per cent or $1,260 a month, says RBC economist Carl Gomez.

The city of Vancouver tops the country with an affordability index of 45.3 per cent or $1,914 — a two-per-cent increase over the previous quarter.

Toronto‘s affordability index is 38 per cent ($1,874), Montreal is 29.7 per cent ($1,094), and Calgary is 29.3 per cent ($1,436).

The housing affordability index, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow, a typical target home for first-time buyers and includes mortgage payments, taxes and utilities.

In B.C., the index is based on owning a detached bungalow worth $321,000 — the highest benchmark in the country.

It is also based on B.C.’s average household income of $51,000 a year.

Calgary has the lowest affordability index because housing prices haven’t increased at the rate of Vancouver‘s, while household incomes are higher at $59,000 a year.

“It’s a case of good news producing bad news in B.C.,” said Gomez.

“The good news is that housing demand is so strong that it’s produced a pent-up demand that’s being released by low interest rates.

“But the bad news is that supply has not been able to keep up and this is pushing home prices sharply higher, which has caused an erosion in affordability,” said Gomez.

The result is that new home buyers wanting to live in Vancouver will have to be prepared to spend more of their income on a home or move to the Fraser Valley and find something cheaper, he said.

“The erosion in affordability in B.C. was the steepest of all regions and firmly leaves the province as the least affordable in Canada,” said Gomez.

“Market conditions will remain tight as strong demand, the shortage of resale listings, and low new home inventories in urban markets such as Vancouver and Victoria, continue to push housing prices higher. 

“However, the situation is expected to stimulate even more new residential construction next year, keeping it a strong growth driver of the province’s economy,” he said.

According to the report, eroding affordability will be a key constraint on domestic B.C. homebuyers over the long term.

Still, B.C. housing markets will continue to retain considerable interest from out-of-province investors and buyers, said Gomez.

While the study uses B.C.’s average household income of $51,000, Gomez said this would be insufficient in itself to qualify for a bank mortgage.

“To finance a $321,000 bungalow or condo, you’d need an income of about $75,000 a year using a down payment of about $80,000,” he said.

Gomez warns that further erosion of affordability could occur when interest rates go up.

© Copyright  2003 Vancouver Sun

 



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