B.C. homes Canada’s least affordable

Thursday, March 30th, 2006

Michael Kane

Soaring prices in the fourth quarter of 2005 pushed the cost of a standard two-storey home in B.C. to $435,000 or an affordability of 62.8 per cent of average household pre-tax income, making the province the most expensive in which to own a home, RBC Economics said Wednesday.

For other housing types, the RBC Affordability Index stood at 29.9 per cent for a standard condo, which remains the most affordable housing type. A standard townhouse is next at 43.2 per cent, followed by a detached bungalow at 54.9 per cent.

In Vancouver, rapid price gains, slower household income growth, higher mortgage rates and increased utility costs all contributed to eroding affordability across all housing types, RBC said.

Housing affordability for a two-storey Vancouver home was pegged at 64 per cent of household income, detached bungalows slipped to 57.5 per cent, while condos hit 29.4 per cent and townhouses reached 43.6 per cent.

The decline in affordability spanned all provinces and all major cities, with the largest deteriorations in B.C. followed by Manitoba and Alberta.

RBC anticipates that affordability will continue to erode as the economy continues to boom and strong in-migration persists. Land shortages coupled with labour and capacity restraints will intensify demand for homes and are expected to continue to drive price appreciation.

The higher home prices combined with rising mortgage rates are expected to slow British Columbia’s booming real estate market by the end of this year.

By 2007, the erosion of affordability will reduce demand and the market will trend to more balanced conditions, said Cameron Muir, senior market analyst with Canada Mortgage and Housing Corp. in Vancouver.

“We are not expecting any kind of crash but we are expecting prices to level off rather than grow at double digit rates.”

Price growth across B.C. is expected slow to about 10 per cent this year, compared to 15 per cent in 2005, said Helmut Pastrick, chief economist of the Credit Union Central of B.C.

However, Pastrick sees the market holding up in 2007 and prices continuing to rise about seven per cent.

“Affordability will continue to worsen over the next year or two,” he said.

“If you look back at previous housing market upturns, we have always gone through this kind of situation where prices have risen substantially and we wonder how long it can go on. It seems to go on until something quite negative happens in the external environment and, in my view, the external environment isn’t going to be negative for the next couple of years, if not longer.”

CMHC’s Muir said affordability measures are climbing to levels not seen since previous market peaks.

“When we combine the price increases we have seen over the past few years with the expected increase this year and gradually rising mortgage rates, it is going to begin to impact demand in the marketplace by the end of this year,” Muir said.

While the markets in British Columbia and Alberta continue to power forward, RBC expects the pace of demand for new and existing homes in the rest of the country to slow moderately over the next two years because of the decline in affordability.

© The Vancouver Sun 2006

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