Tuesday, May 25, 2010

RBC Housing Affordability

The conclusion - Houses are not afforable


British Columbia — Unaffordable and becoming riskier

Rapid price increases are quickly undoing last year’s improvement in affordability in British Columbia. In the first quarter, RBC affordability measures surged between 0.9 and 4.0 percentage points, by far the sharpest deterioration among the provinces. In the past three quarters, the measures reversed between one-third and one-half of their sharp drop in 2008 and early 2009. B.C. housing markets have been on a tear since last summer – with resale activity fully recovering to predownturn levels by the end of 2009 – although some signs of slowing have emerged since the beginning of this year. Nonetheless, the strong price momentum has continued largely unaffected in recent months, returning RBC affordability measures closer to their all-time highs in early 2008. Such poor affordability levels represent an element of risk for the province’s markets.

Risk - in real estate - say it ain't so.


jesse said...

Risk is a function of the probability of an adverse event and the severity of the event so yes, on both these counts, real estate is riskier than it was in years previous, even 2008 for Vancouver and Victoria.

patriotz said...

Not so sure I'd agree with that, would you say that jumping out of an airplane without a parachute is "risky"?

Risk IMHO is about the uncertainty of a positive outcome, not simply the likelihood of a negative one.

Thus I wouldn't call buying a house today "risky", just suicidal.

jesse said...

"would you say that jumping out of an airplane without a parachute is "risky"?"


jesse said...

I don't want to get into semantics too much but here is a standard definition of "risk." The term is typically associated with the occurrence of events that cause harm, injury, or loss.

What you're describing is more to do with statistics. I think a reasonable point to make is that RBC is still using soft language that is unlikely to register with those who don't want to listen too hard: "... poor affordability levels represent an element of risk..." is a pretty limp-wristed statement and disingenuous.