‘Stunning’ ‘Crushing’ ‘Frenzy’: 3 ways RBC is calling out Canada’s housing affordability crisis

RBC Economics’ housing affordability reports have long been the key, sober indicator of how expensive it is to buy a house in Canada. The reports are usually measured, going well beyond the shock of housing price increases and putting them into the wider context of what it takes to actually buy and own a home — things like household income and mortgage carrying costs.

But this month’s report — headlined “Housing affordability spiraling to worrisome levels” — is downright sobering compared to past reports. Here are three ways the report called out “soaring prices crushing affordability” in Toronto and other major markets.

TORONTO UNAFFORDABILITY IS AT AN ALL-TIME HIGH

In the chart, RBC’s Robert Hogue points out that ownership cost as a percentage of median household income (how much a house costs compared to how much you make) in Toronto has spiked to an all-time high. Appearing to surpass the disastrous bubble that presaged the seven-year housing crash in Canada’s biggest city. The numbers are only from late December and don’t even take into account the record-breaking real estate price increases in January and February. Here’s what Hogue had to say about Toronto:

“Soaring prices and the rapid loss of affordability so far haven’t done much to rebalance Toronto’s market. Inventories are in fact near historical lows as legions of buyers snap up properties as soon as they’re put up for sale. The frenzy’s persistence is perplexing considering the beating the area’s affordability is taking.RBC’s aggregate measure has jumped an astounding 10.8 percentage points in the past year to 68.6 per cent — second only to the 71.4 per cent peak in 1990. the measure will go further up (likely by a lot) as prices continue to escalate near term and interest rates increase.With the ownership bar rising so much, though, an increasing number of buyers will be forced to reset their expectations.”

“HOME PRICES DETACHED FROM BUYER REALITY IN MANY AREAS”

Hogue notes that the rush to home ownership during the pandemic has pushed up prices dramatically in almost every city in the country and “the outlook for affordability is grim” as the “frenzy drives up ownership costs to extremes.”

Hogue writes: “Rapid price escalation in the early months of 2022 has already raised the bar to impossible levels for many homebuyers. And with the Bank of Canada now in the process of hiking interest rates materially — we expect a total increase of at least 150 basis points in the coming year—ownership costs look set to spiral even higher.Worst-ever affordability levels could well ensue, putting buyers in a precarious spot.

“Price gains recorded during the pandemic have been nothing short of stunning across Canada, surpassing 30 per cent nationwide and far more in several markets. Increased investor participation further stirred up the buying frenzy and widened the gulf between demand and supply. Still, the extent to which prices have clearly gone beyond what solid fundamentals would suggest in many parts of the country.

“HALIFAX IS SUDDENLY CANADA’S HOTTEST HOUSING MARKET?

Real estate was relatively cheap in Halifax before the pandemic, but the Maritime city had the biggest swing in affordability during the pandemic.

“Move over, Toronto and Vancouver. Halifax may be the hotter market right now. Certainly the rate of price appreciation — more than 27 per cent in the past year — places Halifax up there among Canada’s housing hot spots. And like these other markets, affordability is under siege in Halifax.RBC’s aggregate measure emerged 6.7 percentage points since late-2020, representing the biggest deterioration on record in the area.The positive news is this took place from a good starting position so the measure (at 32.5 per cent) still doesn’t pose a major hurdle for buyers. But further erosion — as we expect — would make the situation increasingly challenging.”