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Most Canadian cities offer "reasonably affordable" housing, according to Royal Bank of Canada's quarterly survey into affordability, but Vancouver is at risk of a downturn.
For the second quarter in a row affordability slipped across the country as prices rose and mortgage rates moved marginally higher.
The bank's index looks at the proportion of pre-tax household income that would be needed to service the costs of owning a specified category of home at going market values. The higher the reading, the more costly it is to own a home based on current market values.
A condo required 29.2 percent (0.8 percent increase) of pre-tax household income to carry, a bungalow 43.3 percent (1.7 percent) and a detached home 49.3 percent (1.8 percent).
"The share of household budgets, taken up by the costs of owning a home at current market values, remains close to historical norms," said Craig Wright, senior vice-president and chief economist at Royal Bank. "However, extremely poor and rapidly eroding affordability in the Vancouver-area market is somewhat skewing the national picture."
The Greater Vancouver Area directly accounted for one-third of the deterioration in affordability at the national level since the beginning of 2011. The average family buying a house in the city would need to dedicate 92.5 percent of its income to own a bungalow.
"Vancouver's housing market is without a doubt the most stressed in Canada and is facing the highest risk of a downturn," Wright said.
A bungalow - the main component examined in the survey, required 51.9 percent of pretax household income in Toronto (up 2.0 percentage points), 42.6 percent in Montreal (up 1.4 percentage points), 41.2 percent in Ottawa (up 1.3 percentage points), 37.1 percent in Calgary (up 0.6 percentage points) and 33.8 percent Edmonton (up 0.6 percentage points).
The bank said a weakening economy could actually help new buyers, because mortgage rates will remain low and take some pressure off of affordability.
"Renewed turmoil in global financial markets has caused heightened uncertainty with respect to the pace of global growth and we need to factor this into our outlook for the Canadian housing market," said Wright. "However, this volatility might have a silver lining; housing affordability in Canada may not deteriorate as quickly or by as much as we previously expected."
However, the bank said lower rates could also accelerate price gains.
"What is less transparent is the degree to which affordability will be affected," said Wright. "Our latest forecast had home prices hitting a plateau later this year and continuing into 2012. The postponement of interest rate increases might motivate homebuyers to stay active longer, extending the current upward momentum in prices and, in turn, acting as an element eroding affordability."