Drop in Toronto home prices improves housing affordability in Q4: RBC

Canada’s housing affordability improved for the first time in two years in Q4 2017 because prices dropped for detached homes in Toronto, says RBC Economics Research in its latest housing trends report. The drop is attributable to the introduction of Ontario’s Fair Housing Plan in April 2017, which imposed a 15% foreign buyers tax.

However, any respite in Toronto housing prices will be “short-lived,” said Craig Wright, senior vice-president and chief economist at RBC, in a release. “Our view is that Toronto prices will bottom out sometime this spring. Then we expect further interest rate hikes through the remainder of this year, which has the potential to stress housing affordability markedly in Canada.”

The report calculates housing affordability as the share of household income needed to carry the costs of owning a home at market price.

Housing became increasingly unaffordable in Vancouver and Victoria in Q4 2017, with prices rising in both cities.

“Unfortunately, Vancouver homebuyers are being challenged by the worst affordability levels ever recorded in Canada,” said Wright. “The costs of owning a home at today’s prices would have represented an astounding 85.2% of a typical household’s income in the fourth quarter.”

In its 2018 budget, the B.C. government announced further housing policy initiatives to cool the market, hiking the foreign buyers tax to 20% from 15%, effective later this year.

Read: B.C. budget hikes foreign buyer tax to 20%

In Montreal, prices and house resales rose in 2017, as the city recorded its second-strongest year ever. Though housing affordability has eroded steadily in the city since 2015, it hasn’t dampened buyers’ enthusiasm, says the report.

The cost of owning a home in the Prairies and Atlantic Canada remains stable with a small increase in mortgage rates contributing to a small deterioration in affordability in the fourth quarter.

Read the full report here.

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