RBC`s Housing Affordability Index

[Jack]

RBC`s just released their newest Housing Affordability Index report. Check out rbc.com/economics.Some interesting comments:On Alberta:-still-poor affordability levels suggests that Alberta markets continue to be overvalued, at least relative to household income.

-As stiff headwinds blow on the provincial economy and erode consumer confidence in the year ahead, would-be buyers will be hard-pressed to step into play until affordability improves more significantly.

-Since the third quarter of last year, the market value of the four housing types tracked by RBC has dropped between 6% and 11% in Calgary and between 9% and 17% in Edmonton.

-As mounting concerns about the economic consequences of the recent sharp drop in energy prices send shivers down the spine of households, housing markets should be expected to retreat further in the year ahead.

Now, in contrast, check out Manitoba (for those in need of the "positive"):

-well-positioned to weather the storm.

-price increases solid in the last few years but well within sane territory.

-RBC`s affordability measures in Manitoba stood between 6% and 13% above long-term averages in the third quarter, suggesting only a modest risk of markets being overextended.

 

[wgraham]

The unedited version:

http://www.rbc.com/economics/market/pdf/house.pdf

Question: If homes are too expensive to buy what to people normally do?

Also, notice the difference between condo/townhome affordability and std homes?

all the best,
Wade

 

[ZanderRobertson]

Very interesting numbers. Thanks for posting gentlemen.

The ongoing discussion of Manitoba vs. Alberta continues.

The graphs on page 6 "Resale housing market conditions in Canada’s metro cities" are very interesting. These indicate that Edmonton and Calgary are now in "Balanced Market" conditions, whereas Winnipeg is in a "Seller`s Market". Note to Jack: given how much you`ve lamented your condo purchase in the great seller`s market of 2007 (Calgary), do you think you should be seriously looking at buying in Winnipeg now? how important of a metric is sales-to-listings-ratio?

good info here thanks again.

Zander

QUOTE (wgraham @ Dec 8 2008, 10:33 AM) The unedited version:

http://www.rbc.com/economics/market/pdf/house.pdf

Question: If homes are too expensive to buy what to people normally do?

Also, notice the difference between condo/townhome affordability and std homes?

all the best,
Wade

 

[JohnS]

Thanks for posting it, Wade.

I was also wondering....
They`re still using a 25 year mortgage, with a 25% down payment, but I thought the numbers showed that more people were switching to a lower DP, and 30-35 year amortizations. (Or, at least the trend is moving that way, even if the majority aren`t there yet.)

Wouldn`t that mean that all the percentages they had were a bit high? Meaning, across the board, all the numbers could/should be dropped down a bit?

Have a good one, all!

JohnS

 

[Jack]

QUOTE These indicate that Edmonton and Calgary are now in "Balanced Market" conditions, whereas Winnipeg is in a "Seller`s Market". Note to Jack: given how much you`ve lamented your condo purchase in the great seller`s market of 2007 (Calgary), do you think you should be seriously looking at buying in Winnipeg now? how important of a metric is sales-to-listings-ratio?
The numbers between Calgary & Winnipeg differ quite a bit. My condo`s in a prime downtown location and currently rents for $1,600/mo. Purchase price was $345,000. Do the math. Horrible deal. That`s a 5.5% GRM, which is pathetic. That said, it is true that the greatest lessons come from the dumbest mistakes, and I certainly consider myself a much more savvy consumer since then, in nearly all ways.

But even in Winnipeg`s seller`s market, average rent for a 2-bedroom in 2007 was $740; average price of a condo as at 3Q08 was $124,100. Again, do the math. Just using those figures, that`s a 7% GRM without doing any work. And you only need to earn about $40,000 annually to qualify for a conventional mortgage like this in Winnipeg. What does this do, in terms of resale? It widely opens up the available pool of people to sell to. I mean, to buy a standard two-storey in Calgary, you have to be earning $105,000. Think that limits the people that you can eventually sell to? Think that, in these times of layoffs, wage freezes, hiring freezes, etc., affordability might suddenly be a little more valuable? In my opinion, yes.

As for how important a metric the sales:listings ratio is, I think it`s very important - it`s essentially supply and demand. In `06, Calgary was nuts. Homes were selling in hours, people weren`t even looking, it was crazy. The herd was a stompin`

. Then, in `08, sales have come down YOY almost 30%, and prices have come down about 10%. And what happened in `08? Listings were at record highs. So, yes, it`s a strong indicator of consumer confidence, supply and demand, balance of the housing market, etc.

 

[rymac]

The report paints the cities with one brush. For Calgary it uses an average price of $443,200 for single detached and you can still buy smaller houses in for under $400k. Besides as CREA stated most of the sale activity in calgary is in the under $400k range. Which would bring down the average selling price.

There still excellent deals in Calgary.

 

[RedlineBrett]

QUOTE (rymac @ Dec 10 2008, 09:04 AM) The report paints the cities with one brush. For Calgary it uses an average price of $443,200 for single detached and you can still buy smaller houses in for under $400k. Besides as CREA stated most of the sale activity in calgary is in the under $400k range. Which would bring down the average selling price.

There still excellent deals in Calgary.

Great post and very true. Stats and numbers can be very misleading. Sales of expensive homes (say 800k+) have been cut in half from this time last year. I have no doubt that this has contributed significantly to the reduction in average selling price.

 

[Jack]

QUOTE Great post and very true. Stats and numbers can be very misleading. Sales of expensive homes (say 800k+) have been cut in half from this time last year. I have no doubt that this has contributed significantly to the reduction in average selling price.

Which should mean that affordability should improve, right? If $800K+ home sales have truly halved in `08, that should give a positive boost to Alberta`s affordability index figure.

So, either the expensive-home-sales-being-halved theory is wrong, or perhaps Alberta is even more overvalued than initially expected.

 

[rymac]

QUOTE (Jack @ Dec 11 2008, 05:37 AM) Which should mean that affordability should improve, right? If $800K+ home sales have truly halved in `08, that should give a positive boost to Alberta`s affordability index figure.

So, either the expensive-home-sales-being-halved theory is wrong, or perhaps Alberta is even more overvalued than initially expected.

The affordability did improve by 0.8-2.2% points. Probably will continue to improve into next year.