Housing affordability worsens in Calgary

New RBC report blames tough economic times and rising interest rates

Mario ToneguzziHousing affordability hasn’t been a real issue for close to 10 years in Calgary but the picture isn’t quite as rosy as it was just three years ago, according to the latest latest Housing Trends and Affordability Report issued on Tuesday by RBC Economic Research.

“Tough economic times first undermined local buyers’ ability to own a property as household income fell during the provincial recession of 2015-2016,” said the report. “More recently, rising interest rates drove ownership costs higher despite home prices largely stagnating in the area.”

The RBC Housing Affordability Measures show the proportion of median pre-tax household income that would be required to service the cost of mortgage payments (principal and interest), property taxes, and utilities based on the average market price for single-family detached homes and condo apartments, as well as for an overall aggregate of all housing types in a given market.

“RBC’s aggregate measure for Calgary tracked a slight upward trend since 2015, including in the first quarter when it rose by 0.5 percentage points to 43.0 per cent,” said the report. “This still shouldn’t be a big issue though buyers now also have to contend with the new stress test. These factors contributed to a 10 per cent drop in home resales in the first quarter.”

The measures by housing category for Calgary and percentage change from the previous quarter in brackets: single-detached, 47.4 per cent (0.7 per cent); condominium apartment, 26.7 per cent (0.2 per cent).

“To be sure, interest rates will continue to be key to the outlook for housing affordability in the year ahead. 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,” said the RBC report. “This would have the potential to stress housing affordability significantly. We estimate that, everything else remaining constant, a 100-basis-point increase in mortgage rates would lift RBC’s aggregate affordability measure for Canada by about four percentage points.

“On the positive side, growing household income will provide some offset. A recent pick-up in wage gains bodes well in that regard. Cooler housing markets and a levelling-off of property values in some areas also could help a bit, albeit to a limited extent. The bottom line is that we don’t expect affordability conditions to get any easier in Canada in the period ahead. At best, they will remain unchanged. Most likely, though, they will become more challenging.”

Respected business writer Mario Toneguzzi is a veteran Calgary-based journalist who worked for 35 years for the Calgary Herald in various capacities, including 12 years as a senior business writer.


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