Quebec's housing market moderately cools, says RBC Economics

Quebec's housing affordability eroded in the fourth quarter of 2005 in the wake of rising mortgage rates, weaker income growth, and higher utility costs, according to the Housing Affordability Index report released today by RBC Economics.

"Quebec's housing market had already begun to cool last quarter," said Derek Holt, assistant chief economist, RBC. "The good news is that supply and demand have slowed simultaneously without impacting prices. House price growth now appears to be moderating into the single digits."

The RBC Affordability Index for Quebec -- 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. Among housing classes, a standard two-storey remained the least affordable at 42.6 per cent. Affordability of a standard townhouse stood at 30.5 per cent and a standard condominium remained the most affordable, requiring 27.7 per cent of income.

In 2005, Quebec's housing starts dropped by almost 8,000 units, down 13 per cent from 2004, showing the strongest decline in Canada this past February. Another sign of Quebec's cooling housing market is that residential permits peaked in 2004 and have since declined significantly. Furthermore, unlike many other parts of the country, the relatively weak investment trend on the non-residential side is expected to continue and will challenge employment growth providing yet another challenge to Quebec's housing market.

Montreal's housing market is experiencing a marked slowdown initiated by a significant decline in housing starts and residential permits. Nevertheless, housing affordability in Montreal deteriorated despite the deflation in prices across almost all housing types compared to the prior quarter, with the exception of condos. House prices are growing modestly in the five per cent range compared to year ago.

The decline in housing affordability spanned all provinces and all major cities. At the provincial level, the largest deteriorations were British Columbia followed by Manitoba and Alberta. The worst hit cities were Vancouver and Calgary.

The RBC Affordability Index for a detached bungalow for Canada's largest cities is as follows: Vancouver 57.5 per cent, Toronto 42.7 per cent, Montreal 34.1 per cent, Calgary 35.6 per cent and Ottawa 33.1 per cent.

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: Although B.C.'s housing affordability remains the least favourable across the country thanks to soaring prices, higher borrowing rates and increased utility prices, its housing market continues to power ahead.

- Alberta: Alberta's housing affordability continued to deteriorate in the fourth quarter of 2005 with house prices climbing steadily. Alberta's booming energy sector has impacted almost all sectors of the economy, but has particularly heated up the housing market.

- Saskatchewan: Even with slower house price growth, Saskatchewan still saw a mild deterioration in affordability as a result of a slowdown in the pace of year over year income growth, higher utility costs and higher mortgage rates.

- Manitoba: Manitoba's housing affordability weakened for a second consecutive quarter as growth in home prices, higher utility costs and higher mortgage rates overwhelmed income growth.

- Ontario: Ontario's housing market is showing signs of a controlled cooling down. Slower household income growth, higher mortgage rates and a jump in utility costs helped drive the decline in affordability.

- Atlantic region: Higher mortgage rates, softer income growth and earlier price gains continue to weaken affordability for the second consecutive quarter in Atlantic Canada.

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

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For further information: please contact: Derek Holt, RBC Economics, (416) 974-6192; Raymond Chouinard, RBC Media Relations, (514) 874-6556; Archived images on this organization are searchable through CNW Photo Archive website at http://photos.newswire.ca. Images are free to accredited members of the media.

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