Saturday, March 17, 2007

RBC Affordability Study

Here are the highlights of the RBC Housing Affordability Study for housing market data up to December 2006.
  • Housing affordability conditions improved in Canada in the final quarter of 2006. The improvements at the national level were chiefly driven by faster income growth in tight labour markets, moderating house price increases, a small decline in mortgage rates and lower utility bills.
  • Although the current housing market correction varies dramatically across the country, the dominant trend in the fourth quarter was a weaker pace of resale activity, an increase of inventories on the market and more moderate price growth.
  • These key fundamentals point towards more balanced housing market conditions in the coming year and the potential for more affordability improvements in 2007 — especially in western Canada.
  • The stark east-west divide in provincial housing markets appears to be softening. The western provinces continue to show signs of price growth topping out with British Columbia, Alberta and Saskatchewan all likely having reached pinnacles in the pace of price appreciation.
  • While Alberta saw its fifth consecutive across-the-board affordability deterioration, the latest numbers indicate that the pace is trending downward with the potential for affordability improvements this year.
  • The remaining western provinces reported affordability improvements: two-storey and townhome segments in British Columbia; two-storey homes in Saskatchewan; and, the two-storey, detached and condo segments in Manitoba.
  • Across-the-board affordability improvements were delivered in Ontario, Quebec and Atlantic Canada as housing markets continued to soften alongside weaker economic growth. Toronto, Ottawa and Montreal all reported substantial and widespread improvements — buoyed by a sharp drop in monthly utility bills.
  • Mortgage quality remains solid in Canada and the sub-prime mortgage market is tiny. Canada, therefore, does not face the same mortgage market risks as the United States. Even U.S. mortgage market fears have gotten out of hand — a little more than one-third of households do not have a mortgage and 49% of households have prime-rated mortgages that are very healthy.


mohican said...

I know prices have increased since December to an all time high so it will be interesting to see:

1) If prices hold through March
2) Continued deterioration of affordability when including data from March.

slugora said...

I think you're overestimating the savy of our remaining fools. They're so entrenched in ignorace that that they are totally blind to the early warning signs.

Some might wake up in April when stats will be a little harder to ignore, and I can't imagine anyone remaining oblivious to the uproar of fear in May.

betamax said...

49% of households have prime-rated mortgages that are very healthy

'prime' is defined by past financial status, not the present. A lot of prime borrowers are in over their heads. Subprime was just the canary in the coal mine; prime's next.

betamax said...

I think you're overestimating the savy of our remaining fools. They're so entrenched in ignorace that that they are totally blind to the early warning signs.

Agreed, but many will deny what's happening even well into the collapse, maintaining that it's nothing more than a brief correction, as RE pumpers in the US now maintain.

I know someone who bought Nortel at over $100 and still hasn't sold; he held on to it all the way down, waiting for it to rise phoenix-like from the ashes. Now he knows better but just doesn't want to admit the loss. Classic.

mohican said...

I agree slug/beta, I was just quoting RBC Economics and their thoughts.

Subprime is the canary in the coal mine and the liquidity contraction will continue right up to the highest levels of 'prime' debt as lenders re-recognize risk as a reality in their business.

patriotz said...

Figures like 49% of mortgages healthy, and 1/3 of houses paid off sound soothing, but they're not.

Put those numbers together and you get 1/3 of homeowners on shaky ground. In a market like housing where the stock greatly exceeds the flow, it only takes a fraction of them being forced to sell, or being foreclosed, to sink the market.

As we will soon see IMHO.