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Is Home Affordability Spinning Beyond Reach?

Remember back in June when we talked about one Vancouver broker that said it was mortgage restrictions, not home affordability, that was making it difficult for Vancouver buyers? Well, she may want to reconsider that whole thing because RBC just came out with their home affordability report and it’s bad news for those looking to buy a home any time soon – especially if you live in Vancouver.

The RBC report on home affordability shows that affordability has dropped once again for the second straight quarter. Of course how affordable a home is for you depends on where you live and where you want to buy, but there were some averages that were broken down.

As you can see from the chart above, affordability on an average bungalow hit 43.3 per cent, meaning that the average household would need to spend 43.3 per cent of their before-tax income to spend on the different costs of housing. That includes the mortgage payment, the utility costs, and the different costs associated with running and maintaining the home. And that 43.3 per cent was a total increase of 0.7 percentage points.

For two storey homes you can see, the affordability was slightly higher at 48.9 per cent, which was also an increase; one of 0.6 per cent. Condos were by far the most affordable (not surprisingly) falling onto the affordability index at 28 per cent, an increase of just 0.1 per cent from last quarter.

But that affordability, as you would expect, changes depending on where you want to buy a home. As you can see from the chart, Vancouver remains the least affordable city to buy a home, and will leave you with almost no income should you decide to become a homeowner. Toronto fares much better, but is still nowhere near to affordable. Montreal, Ottawa, Calgary, and Edmonton are all fairly affordable, and are all below the national average.

RBC chief economist Craig Wright said that higher prices were one reason for such lack of affordability is many Canadian cities; but people also think that interest rates are going to rise very soon, which are making them hesitant when it comes to taking them on.

“By the third quarter, strong resale activity across Canada heated up home prices a few degrees,” he said in the home affordability report. “At the same time, Canadian bond yields rose in tandem with those in the U.S., climbing in anticipation of the Fed (U.S. Federal Reserve) tapering its bond buying program.”

The report does also indicate that if anything were to pose a threat to home affordability now, it would be rising interest rates. However, they say that as long as economic growth around the globe continues at a moderate pace, and inflation maintains its rate, we shouldn’t be seeing rising interest rates until 2015.

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