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BRIAN ELIZABETH
Buzzer
reply 164 vote 7
 

How affordable is home-ownership?

Is home ownership affordable in your city??

RBC recently announced their findings in the RBC Economics February 2011 study, which says:
"Canada's housing affordability continued to improve in the fourth quarter of 2010, thanks in part to slight decreases in five-year fixed mortgage rates and minimal home price appreciation across the country, according to the latest Housing Trends and Affordability report released today by RBC Economics Research.

A majority of provinces saw improvements in affordability in the fourth quarter, most notably in Alberta where falling home prices once again contributed to lower the bar for affording a home. Only the standard two-storey benchmark became less affordable in Ontario and Quebec, as did the standard condominium apartment in Quebec and the Atlantic region.

RBC's Housing Affordability Measure for a detached bungalow in Canada's largest cities is as follows: Vancouver 68.7 per cent (down 0.4 percentage points from the last quarter), Toronto 46.8 per cent (down 0.5 percentage points), Montreal 41.3 per cent (down 0.4 percentage points), Ottawa 38.7 per cent (up 0.5 percentage points), Calgary 34.9 per cent (down 3.1 percentage points) and Edmonton 31.0 per cent (down 2.4 percentage points)."

Find the full study here: http://www.rbc.com/economics/market/pdf/house.pdf

In Vancouver, I feel that the city is not very affordable for the average person, and I get the same sense in Toronto. Of course, if you continue to decrease your home size and move further from the City is becomes affordable.

But, is urban living still affordable? Can people really say that $600 to $700 per square foot is affordable?

I don't think so, but I am sure lots of people would disagree.
19
Canada / General Chit-Chat
 
 
 
MARCO DIFOTI
Senior Buzzer
reply 527 vote 31
 
 
Yes. $600 to $700 per square foot is affordable. It is urban living, so get used to smaller suites!
Below are the highlights of the report, per province:
"Highlights from across Canada:
British Columbia: Buying a home in B.C. became slightly more affordable in the fourth quarter of 2010, due primarily to a small drop in mortgage rates. After experiencing some declines in the previous quarter, home prices rose modestly for most housing categories; condominium apartments bucked the trend, however, and depreciated slightly. Prices were supported by a tightening in market conditions with home resales picking up smartly following substantial cooling in the spring and summer that saw sellers lose their edge in setting property values. Demand and supply in the province are judged to be quite balanced at this point. RBC's Affordability Measures fell between 0.8 and 1.0 percentage points in the fourth quarter which came on the heels of much more substantial drops (1.7 to 4.8 percentage points) in the third quarter. Notwithstanding these declines, affordability remains poor and will weigh on housing demand going forward.
Alberta: Alberta officially became the most affordable provincial market in the country in the fourth quarter, according to the RBC Measures which fell once again by 1.0 to 2.4 percentage points, extending their declines since late-2007. In addition to the lower mortgage rates, the further depreciation of home prices contributed to lowering homeownership costs. Property values were negatively affected by a substantial downswing in demand in the spring and early summer, which put buyers in the drivers' seat. The significant improvement in affordability is near the end of its line, however, as demand has shown more vigour in recent months - alongside a provincial economy that is gaining more traction - and the market has become better balanced. RBC expects that this will stem price declines this year, thereby removing a potential offset to the negative effect of projected rise in interest rates on affordability.
Saskatchewan: The provincial housing market finished 2010 on an enviable note as affordability improved even though home prices, for the most part, rose slightly in the fourth quarter. Generally, the price increases more than reversed declines in the previous period but were too small to negate the beneficial effect of lower mortgage rates. The home resale market gained back solid forward momentum in the second half of 2010, notwithstanding some softening in the final months, which re-established a stronger balance between demand and supply. The RBC Measures fell between 0.6 and 1.1 percentage points in the quarter, although the levels continue to be modestly above historical averages in the province. RBC projects the Saskatchewan market will take its current affordability position in stride as a rebound in provincial economic growth and continued strong migration inflows will support housing demand this year.
Manitoba: Manitoba's market enjoyed the best of both worlds in the fourth quarter of 2010 as home price were higher but ownership costs were lower. Thanks to lower mortgage rates in the quarter and continued growth in household income, the negative effect of small gains in property values on affordability was more than offset. The RBC Measures eased between 0.1 and 0.6 percentage points in the fourth quarter, keeping Manitoba among the only two provincial markets in Canada (with Alberta) in which Affordability Measures stand below long-term averages for all housing categories. Sales of existing homes ramped up considerably in the fall, reaching near historical peaks by December. Housing demand is being boosted by the strongest net international immigration in the province since the mid 1950s and by improved job prospects - Manitoba boasts the lowest unemployment rate in Canada (as of the fourth quarter of 2010) and RBC expects this to continue in 2011.
Ontario: Concerns last year that the housing market would falter have now largely dissipated as home resale activity picked up smartly in the fall and property values resumed their appreciation trend in the closing months of 2010. The slowdown in market activity in the spring and summer last year largely reflected various transitory factors - including the introduction of the HST and changes in mortgage lending rules - that brought demand forward to the start of the year. The silver lining of this slowdown, however, has been an improvement in affordability. The RBC Measures edged lower for the second consecutive time for most housing categories in the fourth quarter, down by 0.2 to 0.3 percentage points. The only exception was two-storey homes, which became marginally less affordable amid notable price gains. RBC expects affordability will play a neutral role for demand in Ontario with RBC Measures close to their long-run average.
Quebec: Higher home prices in the fourth quarter of 2010 caused some deterioration in affordability following meaningful improvement in the previous period. Home resales strengthened in the latter part of 2010, contributing to tightened market conditions that gave sellers a stronger hand in negotiating prices, particularly for two-storey homes. Price gains and rising household income dominated the positive effects of lower mortgage rates on affordability in the fourth quarter for all housing types except detached bungalows (where a small improvement was registered). RBC Measures rose marginally by 0.1 to 0.2 percentage points for two-storey homes and condominium apartments, and fell by 0.6 percentage points for detached bungalows; however, the levels of all Measures still modestly exceeded long-term averages in the province. RBC expects that modestly strained affordability in Quebec will further deteriorate in the period ahead when interest rates rise.
Atlantic Canada: Home resale activity sputtered late in 2010 and reversed some of the gains achieved at the end of the summer and early fall. This has not disrupted property values in the fourth quarter as home prices generally appreciated; yet, housing affordability improved for most housing categories because declines in interest rates provided a dominant offset. Only condominium apartments saw a slim deterioration in affordability as the RBC Measures rose by 0.1 percentage point compared with declines of 0.5 percentage points for detached bungalows and two-storey homes. Affordability levels continue to be mostly attractive in Atlantic Canada from both historical and cross-country perspectives. RBC projects that is likely to remain so in the near-term despite our expectation of higher interest rates. Market conditions have recently swung in favour of buyers which will exert downward pressure on prices in coming months."
 
 
BRIAN ELIZABETH
Buzzer
reply 164 vote 7
 
 
Marco said:
Yes. $600 to $700 per square foot is affordable. It is urban living, so get used to smaller suites!

Affordable to who? Sure, young urban professionals and downsizing boomers can afford this, but do people really want to raise a family in a 500 square-foot suite?
Neither Toronto, nor Vancouver, are New York or London, or Tokyo.
 
 
MARCO DIFOTI
Senior Buzzer
reply 527 vote 31
 
 
^^No one said that you had to living in the centre of downtown!! Suburbs are becoming more dense, and many of these nodes are turning into fantastic areas to raise families and children, with good transportation, excellent schools, and local amenities.
Sure: living "in the heart" of the City may not be affordable for all.
 
 
URBANDREAMER
Buzzer
reply 96 vote 2
 
 
When it's cheaper to rent than own and put the remainder towards stocks and other asset classes, you know it's not affordable....
The only reason new immigrants can afford the GTA is cultural--they pool their money and multi generational families live in one large suburban home. Regular folks who wouldn't be part of that cultural background could never afford a home--only at great cost to quality of life--ie working long hours, having only one child vs several, never eating out, few vacations etc.
Not everyone works on Bay St.
 
 
MATTHEW SLUTSKY
Senior Buzzer
reply 2201 vote 127
 
 
Brian said:
Affordable to who? Sure, young urban professionals and downsizing boomers can afford this, but do people really want to raise a family in a 500 square-foot suite?

I do not think that it is fair to signal out an entire city because the downtown core is expensive. You should look at the core as just an other neighbourhood.
In the example of Toronto, Forest Hill, Rosedale and The Bridal Path are very expensive and most of the population of Canada could not afford these areas, but that does not mean that the entire City is unaffordable for families.
I agree with Marco, you have to look at all the different neighbourhoods, and determine which ones are affordable to you. In the case of Toronto, we have an okay transportation system to most of the surrounding areas, as well as great amenities in the outter areas, which make them affordable and livable.
 
 
URBANDREAMER
Buzzer
reply 96 vote 2
 
 
I agree with Marco, you have to look at all the different neighbourhoods, and determine which ones are affordable to you. In the case of Toronto, we have an okay transportation system to most of the surrounding areas, as well as great amenities in the outter areas, which make them affordable and livable.

Sure, there are affordable areas in Toronto, but at what cost? Jane and St Clair is cheap--not cheap enough imo, but what's so interesting about the area? You still have to drive to get somewhere worth shopping--that Walmart is killing the area's small business potential.... The upper Junction--north of the tracks--is also reasonably cheap, but again, it's quite ugly and not exactly the safest place to raise children.
Really, Hamilton is looking rather attractive!
 
 
MARTHA LEE
Buzzer
reply 35 vote 1
 
 
There is a very interesting report, which assesses housing affordability as related to average household income:
DEMOGRAPHIA - 7TH Annual Demographia International Housing Affordability Survey: 2011
http://www.demographia.com/dhi.pdf
The premise of the report is that to be considered affordable, the median housing prices in a given area should be no more than 3 times the median income for that same area:
Severely Unaffordable - 5.1 and above
Seriously Unaffordable - 4.1 to 5.0
Moderately Unaffordable - 3.1 to 4.0
Affordable - 3.0 or less
Toronto, for example, has been assessed with a Median Multiple of 5.1 so it is considered Severely Unaffordable. However, cities such as Vancouver are far more unaffordable, with a Median Multiple of 9.5!
Alternatively, a city such as Windsor, Ontario is rated as the most affordable housing in Canada, with a Median Multiple of 2.1. It is also worthy to note, however, that the most affordable markets are also the most economically `depressed'.
The report also notes a correlation between more restricted land use regulations and severely unaffordable housing markets. The restrictions which aim to limit `urban sprawl' have the effect of materially increasing the price of land and making housing less affordable.
 
 
MARCY
NewBee
reply 5
 
 
As a mortgage broker I think there are still some very affordable areas in Toronto. the key to affordability is the down payment and your spending habits. One of the sadder things I've seen in the last several years is the erosion of manufacturing in small towns. These use to be good paying jobs and allowed people to live in other areas. With the demise of those jobs more and more people are migrating to major urban centers without skill sets necessary to earn enough income for home ownership. the changing demographics of larger cities may also have something to do with the affordability factor.
Interesting discussion and have to say - I'm learning lots from the posts.... thanks everyone for sharing your ideas...
 
 
MICHAEL WINESTONE
Buzzer
reply 52 vote 3
 
 
Brian said:
Marco said:
Yes. $600 to $700 per square foot is affordable. It is urban living, so get used to smaller suites!

Affordable to who? Sure, young urban professionals and downsizing boomers can afford this, but do people really want to raise a family in a 500 square-foot suite?
Neither Toronto, nor Vancouver, are New York or London, or Tokyo.


Brian hit it right on the head. You can't compare us to any of these cities. Toronto is far from affordable, as developers feel the need to build these tiny little boxes in the sky because it's the most profitable form of unit to build and investors saturate the markets causing prices to inflate MUCH faster then incomes have been. 70% of condos are sold to investors, and many have the intentions of flipping them for big profit upon completion. This is where we have gone really wrong in this city, as many people are treating real estate like the stock markets, expecting HUGE gains over a short period.
From an affordability standpoint.....what do people think would happen to prices if 70% of the condo buyers were end users? Do you feel we would have a more sustainable market?
Michael
 
 
NAWAR NAJI
Buzzer
reply 19
 
 
I have been searching for data on percentage of investor buyers in the pre-con market, Michael what is the source for the 70% figure?
 
 
MATTHEW SLUTSKY
Senior Buzzer
reply 2201 vote 127
 
 
^^Hey Nawar, it was a comment that Barry Lyon made while he was a panelist at RealNet's RealInsider breakfast event in January.
 
 
ROB MACDOUGALL
NewBee
reply 2
 
 
Here's an article, featuring Carras from RealNet, where 50% cited in Toronto (2010). http://www.theglobeandmail.com/real-estate/as-condo-prices-rise-investors-still-find-homes-for-their-money/article1551038/
 
 
NAWAR NAJI
Buzzer
reply 19
 
 
Thanks Matthew & Rob for the information
 
 
RATEHUB.CA
Buzzer
reply 115 vote 4
 
 
Hey guys,
This is a great high level discussion on overall affordability.
We've been trying to help consumers estimate their own affordability and have been working on some new tools over the last few months. Our calculators help users estimate:
-Total cash required at close
-Monthly carrying costs (including property taxes, utilities etc)
-Interest rate risk (what will mortgage payments look like at higher interest rates)
We will be refining over the next few weeks and would LOVE your feedback!! Check out www.ratehub.ca/mortgage-payment-calculator
 
 
MICHAEL WINESTONE
Buzzer
reply 52 vote 3
 
 
Nawar said:
I have been searching for data on percentage of investor buyers in the pre-con market, Michael what is the source for the 70% figure?

I have read it in numerous articles over the past year or so. I will have to go back and have a look. I'll send you the links once I find them again...
Some friends of mine in new construction sales have cited from a realtors perspective that at least 3 in 5 of his buyers are speculators in the buildings he sells. They have the intentions of flipping once the building registers, or sometimes even trying to assign the APS prior to. Not too healthy.
Michael
 
 
MARCO DIFOTI
Senior Buzzer
reply 527 vote 31
 
 
Isn't the free-market supposed to determine prices? It seems to me that condos in Toronto are selling like hot-cakes at the current pricing.
Where there is greater demand, prices will be higher, and might not be as "affordable".
If they are overpriced, then there will have to be a drop and these speculators will be hurt. That is what happens when you look at real-estate with short-term gains in mind.
Think long term, and you will be fine.
 
 
AMAR PAL
Buzzer
reply 98 vote 7
 
 
Brian said:

Neither Toronto, nor Vancouver, are New York or London, or Tokyo.

Why not?
I don't know much about Toronto, but Vancouver is an investment haven for what is soon to be the biggest economy in the world, China. It's also surrounded by water and mountains on 3/4 sides with agricultural land reserves taking up a lot of the space where there actually is land. Add to that it's consistently ranked the most livable city in the world.
To answer the original question, I don't think municipal Vancouver is affordable for a lot of locals. This is certainly an issue for local Vancouverites, however I also don't think that makes it unsustainable. Locally affordable and sustainable don't have to be the same thing.
If enough international buyers continue to buy into a market where supply and land will always be limited, we might just end up with a situation where locals unfortunately will struggle to keep up, but prices continue to rise regardless.
 
 
BRIAN ELIZABETH
Buzzer
reply 164 vote 7
 
 
^My point was that neither Toronto nor Vancouver have the population that New York, London and Tokyo have. It is due to their huge populations, and a lack of space, that make people live in 55 square foot inner-city homes.Toronto and Vancouver are not at this point yet.
I agree with your other points, but think that this will continue to erode the ability to live in larger spaces, and much like NY, London and Tokyo, people will have to learn how to live in smaller and smaller spaces. But, no where near the smallness that other major cities are facing.
 
 
MICHAEL WINESTONE
Buzzer
reply 52 vote 3
 
 
Brian said:
^My point was that neither Toronto nor Vancouver have the population that New York, London and Tokyo have. It is due to their huge populations, and a lack of space, that make people live in 55 square foot inner-city homes.Toronto and Vancouver are not at this point yet.
I agree with your other points, but think that this will continue to erode the ability to live in larger spaces, and much like NY, London and Tokyo, people will have to learn how to live in smaller and smaller spaces. But, no where near the smallness that other major cities are facing.


It's not just population.... It's the characteristics of ANY of those cities. For example, New York is the Fashion Capital Of The World, Financial Capital Of The World, "Hollywood" of the North US, etc.... London is pretty much the same as NYC is but for the UK and probably most of Europe.... Tokyo...well, everything is in Tokyo.
Can't compare any of these cities to Toronto. We're the 10th largest city in North America and at least 7 of the top 10 are much cheaper to live in then Toronto.....even before the recession hit in the US.
Michael
 
 
 
 
 

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