A surge in B.C. housing costs mean affordability is being washed away, according to an RBC economics research report released this morning.
The report found home affordability measures had risen more in B.C. than in any other Canadian province during the first quarter of 2010.
The RBC housing affordability measure is based on the costs of owning a benchmark detached bungalow in B.C. and captures the province’s proportion of pre-tax household income needed to meet those costs. A higher measure means a loss of affordability.
The measure for detached bungalows in B.C. rose 4% to 66% when compared with the fourth quarter of 2009.
"We’re probably past the peak, but still it is a market that has quite a bit of momentum. When you have prices at essentially record levels it does negatively impact affordability,” Robert Hogue, RBC’s senior economist, told BIV this morning.
The loss of housing affordability was a common theme across Canada except in Alberta where provincial housing prices have remained stable over the last year.
Resale activity in B.C. recovered to pre-downturn levels by the end of 2009 and affordability measures are now close to 2008’s all-time highs. That injects an element of risk into the province’s housing market, the report said.
Further erosion in affordability is expected during the next 12 to 18 months, but with mortgage rates expected to rise in the next year-and-a-half the market could slow. The introduction of HST has also prompted buyers to snatch up homes sooner than they would have.
“Buyers are looking at interest rate increases they want to beat, so with the higher interest rates we’re expecting demand to cool,” Hogue said, adding that affordability improvements are unlikely in the near term.