Vancouver home affordability has biggest drop in 26 years: RBC

Housing affordability in Vancouver had its biggest drop in 26 years during thefirst half of the year, but signs of cooling are beginning to show up there, and inToronto, according to a new report from Royal Bank.

The bank said its home affordability measure the percentageofmedian pre-tax household income necessary to service the mortgage, property taxes and utilities for all categories of homes hit90.3 per cent for Vancouver by the end of June after surging by 6.6 percentage points in the first quarter and 6.1 percentage points in the second quarter.

The figure is even worse for a single-detached house, which now requires 126.8 per cent of median pre-tax income to carry.

"Clearly, owning a single-detached property at current prices in Vancouver is a luxury that very few locals can afford," the bank said.

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In Toronto, the overall cost-of-ownership measure hit 60.2 per cent of median pre-tax income at the end of June, mainly due to a run-up in single-detached home costs.

RBC said the level of Toronto's aggregate affordabilitymeasure was the highest since the third quarter of 1990.

However, the bank's chief economist says signs of cooling resale activity have emerged inVancouverand, more tentatively,inToronto.

"We believe the blistering pace of property appreciation in both markets may slow by year-end," saidCraig Wright.

"This likely won't help affordability in the near-term because of demand-supply tightness in the two markets at the present time, but some relief could arrive late this year or early in 2017," Wright said.

While housing affordability in other major Canadian cities generally eroded modestly in the latest period, some cities, includingCalgary, Saint John, and St. John's saw some improvement.

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In a separate report, TD Bank is forecasting theVancouver and Toronto market willfollow different short-term paths, with Vancouver expected to see a modest correction that would be driven, in part, by the introduction of the new tax on foreign buyers of property.

Sales activity in Vancouver is expected to drop by 10 to 15 per cent over the next six months, TD said, and it projectsprices will decline by about 10 per centin the region by mid-2017, before stabilizing later in the year.

Toronto, meanwhile, is forecastto see some continued home price gains.

"Barring the levying of a similar tax, foreign investors could switch focus to the more affordable Toronto market," TD said.

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