DATE

RBC: Home Price Declines Easing Affordability Crisis

Steve Saretsky -

Following a once considered inconceivable decline in home prices across Greater Vancouver, housing affordability is unsurprisingly improving. Indeed the team at RBC Economics has caught on, updating their latest affordability index.

RBC summarized the changing dynamic in the nations most expensive property market, “The Vancouver-area housing market is in full-blown correction mode. Home resales have plummeted 58% since the peak in early 2016 with no sign of a turnaround so far in 2019. While various policy measures triggered and sustained the correction, Vancouver’s ongoing affordability crisis explains most its magnitude. The demand-supply balance now favours buyers and prices are falling. This helped RBC’s aggregate affordability measure to improve by 2.6 percentage points in the fourth quarter. With ownership cost still representing 84.7% of household income, we’re still a long way from the end of the crisis.”

Vancouver housing affordability
Source: RBC Economics

The recent pullback in home prices, which as of February saw Greater Vancouver detached home prices slide 9.7% year-over-year, and condos dip 4% from last year should come as no surprise given the bout of policy measures and rather benign mortgage credit growth, which is expected to continue as the economic outlook slows and the yield curve inverts.

Affordability pressures, however, remain elevated- particularly in the condo segment where a significant premium still exists over current rent prices. “The intense affordability pressures present in some of Canada’s largest markets over the past few years have driven up demand for condos. This is because an increasing number of buyers have been shut out of the higher-priced single-family home categories and turned their focus toward lower-priced options—mainly condos. Trouble is, this stronger demand for condos resulted in sharper price gains and affordability erosion.”

RBC Economics
Source: RBC Economics

However, with mortgage costs subsiding and a record number of new construction condos en route, inventory continues to outpace sales, affordability pressures will surely ease across all segments in the year ahead. This was of course something I suggested would happen back in January when consensus was calling for rising mortgage costs to offset the decline in home prices.

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

Steve Saretsky -

Consumer price inflation ripped higher in September, surging 4.4% year-over-year, the fastest pace of price increases in 18 years. Let’s discuss this further. We have an inflation problem and the Bank of Canada remains of the view that inflation will be transitory. Although they really can’t say otherwise, for if...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022