Canadian homes are getting less affordable: RBC

CTV National News: Housing market tug of war A Royal Bank report shows housing prices are up but the number of people who can afford them is down. Scott Laurie has details.

It’s getting harder and harder for Canadian families to afford a home- and that trend is going to get worse- according to new research from RBC.

House prices continue to rise, causing the affordability index to deteriorate. The affordability index is a measurement of the percentage of pre-tax income needed to service the cost of owning a home.

The deterioration is most severe in hot markets like Toronto. Vancouver and Calgary.

RBC Chief Economist Craig Wright says that it’s going to be an even bigger stretch for households going forward. He warns that if prices continue to rise in some of these key markets over the short term, it’s likely to negatively impact affordability. He says:

“The eventual normalization of monetary policy (interest rates) will lead to substantial increases in interest rates over the medium term, which could be too much for other affordability determinants to counteract.”

Nationally, the index rose 0.1 points brining the index to 43.2%  for detached bungalows and 49.0 % for two-storey homes - a 24 year high.

Affordability Decreased in Canada’s hottest markets like Vancouver (82.4%) Toronto (56.1%) and Calgary (34.5%) While it increased slightly in smaller markets like Ottawa (36.4%) and Edmonton (32.9%)

The affordability measure is more relevant to newer buyers- the majority of Canadians bought their homes when prices were lower.

RBC says the erosion of affordability doesn’t pose an immediate threat to the housing market- and the Bank of Canada is not expected to raise interest rates until at least 2015- with many economists not expecting an increase until 2016.