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Quebec's housing affordability deteriorates, says RBC Economics

Quebec's housing affordability deteriorates, says RBC Economics

Quebec's housing affordability declined for a second consecutive quarter, according to the Housing Affordability Index report released today by RBC Economics.

"While affordability continued to decline, the ratio of home sales-to- listings has been gradually shrinking over the past year, suggesting our anticipated cooling of Quebec's housing market is now underway," said Derek Holt, assistant chief economist, RBC. "Other signs of a slowdown have also emerged as April housing starts are down 23 per cent compared with a year ago and the demand for residential permits has weakened."

The RBC Affordability Index which measures the proportion of pre-tax household income needed to service the costs of owning a detached bungalow - stood at 34.8 per cent for Quebec. The largest affordability erosion was the standard condo, requiring 29.2 per cent of income. This decline was largely driven by a 10 per cent year-over-year surge in condo prices and an 8.5 per cent increase from the previous quarter.

After two quarters of almost flat prices, RBC notes that the average condo price rose by about $13,000 in the most recent quarter, bringing the average purchase price up to $171,115. While condos still remain the most affordable housing category in Quebec, townhomes are close behind with an average price of $174,000, down for a second consecutive quarter. Affordability of a standard townhouse stood at 30.3 per cent of household income and a standard two-storey home at 43.2 per cent.

Affordability in Montreal also dropped across the board for all housing types. Condo prices were up 10.5 per cent, reporting the strongest deterioration followed by a two-storey home. A sharp appreciation in condo prices led to the decline, bucking the trend of cooling prices that started back in 2005.

"The combination of a small decline in household income, modestly higher mortgage rates and higher house prices contributed to Montreal's overall deterioration in affordability," added Holt.

RBC's Affordability Index for a detached bungalow for Canada's largest cities is as follows: Vancouver 64.4 per cent, Toronto 41.7 per cent, Calgary 32.7 per cent, Montreal 34.9 per cent and Ottawa 28.9 per cent.

Also included in the report are housing affordability conditions for a broader sampling of smaller cities across the country, including Quebec City. For these smaller cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.

The Housing Affordability Index, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condo. The higher the index, the more costly it is to afford a home. For example, an Affordability Index of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.

Highlights from across Canada

- British Columbia: British Columbia's affordability further deteriorated and it remained the least affordable province in which to own a home. Despite eroding affordability, B.C.'s economy continues to exhibit strengt

- Alberta: The cost of owning a home in Alberta continued to increase, as rapidly rising house prices and mortgage rates outpaced strong income and employment growth for the second consecutive quarter.

- Saskatchewan: Saskatchewan's affordability declined across all housing classes for a second consecutive quarter. Higher utility costs and rising mortgage rates led to the deterioration, despite decent income growth.

- Manitoba: Solid housing price increases and higher mortgage rates were to blame for the overall deterioration in Manitoba's housing market with affordability declining for a third consecutive quarter.

- Ontario: While Ontario's housing market continues to see signs of a soft landing, housing affordability declined. Income gains of about $50 per month this quarter were not enough to offset higher mortgage rates and higher utility costs.

- Atlantic region: Atlantic Canada continues to experience a slow and steady deterioration in housing affordability. Moderate wage gains in the region were not able to offset the higher monthly payments necessary to maintain a house.

The full RBC Housing Affordability Index report is available online, as of 8 a.m. E.D.T. today at www.rbc.com/economics/market/pdf/house.pdf.

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Québec Landlords Association (1)

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