House prices in region hitting incomes hard
Greater Victoria home prices are hitting record highs at the same time that affordability is being eroded in the capital region, a new report states.
“The share of household income required to cover the costs of ownership of a typical home ballooned from 48 per cent in mid-2015 to 62.7 per cent in the first quarter” of 2018, said the Housing Trends and Affordability Report from RBC Economic Research, released Wednesday.
In Canada as a whole, the average needed to buy a home was 48.4 per cent — a multi-decade high.
“Higher mortgage rates were the main contributor to the rise in ownership costs,” said Craig Wright, senior vice-president and chief economist at RBC.
Three consecutive increases in quarterly interest rates have boosted the cost of owning a home, the report said.
“With the prospect of more interest rate hikes in the period ahead, there’s a definite risk that affordability will further erode in the coming year,” Wright said.
“The odds of this occurring will also depend on the degree to which household income increases.”
RBC predicts that the Bank of Canada will continue to increase interest rates, moving from its current overnight rate of 1.25 per cent to 2.25 per cent by the first half of 2019.
“That would have the potential to stress housing affordability significantly.”
The best-case scenario will be that affordability conditions do not change, but it is likely that they become more challenging, RBC said. In the capital region, “soaring prices in the past two and a half years seriously hampered homebuyers’ ability to own a property in Victoria.”
But higher prices did not bring more sellers into the market — rather, the number of listings dropped by 22 per cent, the report said. “It could be that current owners simply can’t afford to sell given how expensive their next housing options are.”
As the number of housing sales slide in Greater Victoria compared with 2017, selling prices continue marching higher in all categories.
The benchmark price for a single-family house in the entire region hit a record $745,100 in June, an increase from $691,100 in June 2017. Another record was set in the Victoria core area with a benchmark at $889,600, versus the same month last year at $829,600. The core represents Victoria, Saanich, Oak Bay, Esquimalt and View Royal.
Condominiums saw their benchmark price in the region reach a record high of $486,100 versus $420,900 in June 2017. The benchmark price for a townhouse in the region came in at $594,300, also a record. June of last year saw the townhouse benchmark at $543,600.
Benchmark values, considered more accurate than averages that are easily skewed by sales at extreme ends of the price range, were not immediately available when the monthly sales report came out from the Victoria Real Estate Board on Tuesday. The benchmark represents the value of a typical home in a particular area.
As a result of the lack of benchmark data, the Times Colonist reported initially reported only on the average price for a singlefamily house in Greater Victoria. It was $889,097, down from $921,046 in May. Benchmark figures were released on Wednesday by the real estate board.
Casey Edge, executive director of the Victoria Residential Builders Association, said prices are up and sales are down because of a lack of supply in the region — and that is due to a lack of regional planning. “We have obstructive municipal councils and community associations where every new development is a costly battle,” Edge said.
Many individual municipalities and community associations do not want to see change, he said. “In the core area, it is all a battle against more density.”
Strong demand exists because of the large number of millennials, he said. These millennials have well-paying jobs in Greater Victoria — which has one of the lowest unemployment rates in Canada — and are ready to buy a home and start families.
All levels of government are obstructing supply and driving up costs for new housing, Edge said. Everything from GST, to property transfer tax, to the upcoming speculation tax, to lengthy municipal processes and regulations, which are expensive, all push up the price a new home.