Toronto homes least affordable since 1990 bubble, says RBC

By: Dominic Licorish on March 30, 2017

At the end of 2016, Toronto and Vancouver’s housing affordability levels were moving in opposite directions says Royal Bank of Canada’s latest report on housing trends and affordability.

The report shows that Canada’s two least affordable housing markets are beginning to diverge. While affordability continues to erode in Toronto, Vancouver is experiencing a slight improvement in affordability. This marks the first time affordability has eased in Vancouver in three years, but the city remains the least affordable city in Canada by a wide margin. For it’s index, RBC determined home ownerships as a percentage of median household income.

In Toronto, the cost of homeownership rose from 63.8% in the third quarter of 2016 to 64.6% at the end of the year. The last time home ownership made up such a large share of household income was in 1990. According to RBC, the GTA is a high-risk market because factors only indicate that prices will go up, making the city even less affordable.

In the fact sheet, Craig Wright, senior vice-president and chief economist at RBC, writes “Most of the affordability stress [in Toronto] is concentrated in the single-detached segment, but the recent acceleration in condo prices signals that this segment is not far behind.” With no indication of slowing, he agrees that Toronto will soon require government intervention to cool down the market and ease affordability stress.

On the other hand, things are looking more hopeful in Vancouver, where the cost of ownership dropped from 90% of the median household income to 84.8% from Q3 to Q4. Lower incomes and higher house prices make it the least affordable city in Canada, and there’s no indication that will change in the short-term future, but this improvement suggests that things are at least on the right track.

Outside of Toronto and Vancouver, the Canadian housing market is a lot less dramatic. Affordability levels remain high with home ownership taking up 44.2% of household income. But there was some good news as Q4 2016 marked the end of a six quarter long streak of the cost-to-income ratio getting worse. The report identifies two exceptions, however: Calgary and Victoria. In Calgary, homes were slightly more affordable than normal, while homes in Victoria were slightly less affordable.