In a recent note, RBC Economics released an update to its measure of housing affordability, showing ownership costs as a percentage of median household income. Here are the highlights:
The widespread rise in house prices drove RBC’s affordability measure to its worst level in 31 years. For Canada, it reached 52 per cent in the first quarter of 2021, its highest level since 1990. It was noted that this deterioration is solely attributable to higher prices rather than to a decrease in household income.
Buyer’s preferences have changed, with a notable gain in interest in homes with larger living spaces, manifested, in part, by a significant increase in the price of single-family homes.
Small markets, which enjoyed a higher level of affordability compared to large cities, saw this advantage erode during the study period.
In the Montreal area, the overheated market has had a negative impact on affordability. RBC’s national aggregate measure rose 0.9 percentage points in the first quarter of 2021 to reach 44.6 per cent, one of the highest increases among markets tracked by RBC Economics.
Despite the rise in prices, RBC Economics believes that affordability remains acceptable across Quebec. RBC’s aggregate measure for the province reached 29.1 per cent in the first quarter of 2021, lower than its historical average of 30.1 per cent.
The affordability situation could continue to deteriorate if the imbalance in the market continues.