Affordability continued to deteriorate in 2007, RBC report finds
Derrick Penner
Sun
It got even harder to afford a home in Metro Vancouver at the end of 2007.
RBC Economics confirmed Friday what any home shopper here knows — buying a house will eat up most of an average person’s income.
Covering the cost of a standard, 1,500-square-foot two-storey Metro Vancouver house worth $648,592 would take 79.2 per cent of the region’s median pre-tax household income, according to RBC’s fourth-quarter measure of housing affordability.
The catch is that no family making a median income — about $59,000 for Vancouver — would qualify for a mortgage on that house. At that income, even most condos in Metro are out of reach.
Median income means half of the incomes in the area are above it and half are below.
“Affordability did continue to deteriorate in the final quarter of 2007,” RBC economist Amy Goldbloom said in an interview, which was “the lagged effect of higher mortgage rates and continued increase in prices that filtered through into a higher cost of living.”
However, Goldbloom added that a bit of the pressure on housing costs should ease in B.C. during 2008 due to an expected small decline in mortgage rates and a softening in demand.
Real estate sales will decline in part because more people are being priced out of the market. Goldbloom said that will be enough to slow price increases to seven per cent, in RBC’s forecast, from 12-per-cent price gains in 2007.
Goldbloom added that RBC’s forecast is for incomes to grow “at a fairly healthy pace, but still lagging the pace of house-price gains, which is always concerning. You do need these fundamentals to keep up.”
Provincewide, the RBC report noted that the ratio of sales compared with new listings added to the market is slowing, which indicates a “gradual rebalancing” of markets.
Back to the reality of how much home qualified mortgage seekers can afford, RBC’s index tables also show the qualifying household income for a mortgage on that standard, two-storey home is actually $146,739.
The household income required to get into a 25-year mortgage on standard 1,200-square-foot Metro Vancouver bungalow would be $136,706. Using RBC’s affordability calculations, it would take 74 per cent of the median income earner’s pay to cover that mortgage, taxes and other fees.
The standard Metro Vancouver townhouse of 1,000 square feet and an average price of $443,988 would have eaten up 54.3 per cent of that median income. However, the income required to qualify for that mortgage would have been $100,520.
A standard 900-square-foot condominium was closer to affordable, requiring almost 38 per cent of that median income to support the costs of a $305,206 unit. However, the qualifying income to get into that mortgage would still have been $69,561.
Nationally, the RBC report found that, by the fourth quarter of 2007, the cost of owning a home to be at its highest level in 18 years.
“Housing affordability deteriorated across the country in every quarter in 2007, to end the year at its most unaffordable level since 1990,” said assistant chief economist Derek Holt.
The exception, however, was booming Alberta, where prices measured on the RBC index dropped from the third quarter to fourth quarter, with bungalow prices leading the way with a seven-per-cent decline.
Alberta condominium prices dipped five per cent from quarter to quarter, the second quarterly decline.
Alberta townhome prices were down four per cent in the fourth quarter compared with the third quarter, the standard two-story home 4.3 per cent from the previous quarter.
