RBC report shows housing ownership costs rising
The latest Housing Trends and Affordability Report from RBC Economic Research says the costs of carrying a home in Canada took, on average, more than 50 percent of household income.
“RBC’s affordability measure hasn’t been this bad since 1990,” write the report’s authors, Craig Wright, chief economist and Robert Hogue, senior economist. “The ownership costs to carry a home bought in the second quarter of 2018 would have taken up 53.9 percent of a typical household’s income. This is up sharply from 43.2 percent three years ago.”
Wright and Hogue point their fingers at interest rates and mortgage regulations for the rise in ownership costs.
“Mortgage rates increased in each of the past f our quarters and accounted for the entire rise in RBC’s aggregate measure for Canada over that period,” they write. “Unaffordability is off the charts in Vancouver, Toronto and now Victoria. Interest rates have a big impact in these highpriced markets.”
As has been the case for several years, these markets are skewing the national averages in all categories, although affordability deteriorated in all major markets.
In Vancouver, the carrying cost of ownership is 88.4 percent, i n Toronto and in Victoria, 56 percent. In comparison, in Calgary carrying costs took an average of 43.9 percent of household income, in Edmonton 28.4 percent, in Ottawa 38.6 percent and in Montreal 44.1 percent.
The outlook is for more of the same, says Wright and Hogue.
“We expect the Bank of Canada to proceed with further rate hikes that will raise its overnight rate from 1.50 percent currently to 2.25 percent in the first half of 2019. This will keep mortgage rates under upward pressure and boost ownership costs even more across Canada in the period ahead.”
Buyers can escape the rising rates by purchasing before the increase and locking into a fixed rate.