RBC broke down the types of homes and their costs for an easier understanding. According to the numbers condo prices have remained relatively stable in part due to the number of young, single people living in the cores of Canada’s biggest cities. However, detached bungalows and two story homes traditional houses for families, have become less affordable in the recent quarters due to what RBC says is “an erosion in affordability” from less supply to balance demand. The numbers highlight that most construction for the housing sector is focused on condos and less on homes in rural areas or the suburbs.
The focus of these rising costs is largely centred on the Vancouver market; RBC says the cost of living in Vancouver remains the least affordable in all of Canada. The report stated that all types of homes in the Vancouver market from condos to two story homes, were impacted by the latest numbers; raising the cost of home ownership well above the long-term national average. The suspected condo bubble in Toronto was also mentioned in the report; however RBC believes that with costs still below the bubble of the 1980s, the concern towards the Vancouver market is not translated into Toronto, not yet anyway.
The report did have a section to describe cooling signs in Canada’s housing market this most recent quarter citing falling resale of homes in both May and June. It is also believed that with the federal government’s decision to reduce the amortization of mortgages from 30 years down to 25 years; cooling signs may continue as more Canadians become impacted by these changes.
But RBC does firmly state that the Bank of Canada’s hawkish talk of raising interest rates is not a good sign for Canadian home affordability. They believe that the record low interest rates the last few years have saved Canada from falling into a housing collapse that the U.S. experienced at the heart of the recession in 2008. If the bank follows through on its plans for raising those rates next year, the pressure on household budgets could become too much for the average Canadian to handle.