Despite all the talk about housing prices taking a dive across the country, notably in Toronto and Vancouver affordability is expected to decline in most Canadian cities, according to a recent report from RBC.
The cost of home ownership relative to median incomes will continue to rise, RBC said, forecasting higher interest rates will make carrying a mortgage more expensive.
In Toronto the cost of owning a home will take up 79 per cent of the median household income of $71,631 by the fourth quarter of this year, up from nearly 76 per cent in 2018.
Meanwhile, house prices are expected to rise 0.5 per cent in 2019 as sales increase 5.6 per cent, according to RBC Economics Research. Last Friday, the Toronto Real Estate Board said the average selling price for all types of property in the Greater Toronto Area fell by 4.3 per cent in 2018 to $787,300.
Meanwhile Vancouver is on track to see a decline in house prices by up to 2.5 per cent this year. The benchmark price for a home, which is a composite of detached properties, townhomes and condominiums, fell by 2.7 per cent in December 2018 compared to the previous year.
But, the cost of owning a home in that city is expected to remain at 88 per cent of the median income of $77,410 in the fourth quarter of 2019, similar to 2018.
The bank said that policy makers likely gave themselves “high marks” for guiding the country’s housing market to a soft-landing last year but there’s been no improvement in affordability. Many people will be shut out of the housing market as a result, particularly first-time buyers.
The report says: “The bar will get even higher in 2019, as the Bank of Canada continues to hike rates. Add in tougher mortgage stress-test rules and some first-time buyers will be looking at a very high hurdle.”
Montreal, Edmonton, Calgary and Ottawa will also see affordability slip this year as the cost of housing will rise relative to household incomes. Overall, Canadians will spend 56 per cent of their median household income of $68,220 to own a home, up from almost 54 per cent last year, according to the report.
There are two more hikes expected this year.
In 2019, 18 months into the central’s bank’s hiking cycle, the average household will pay about $1,000 more to service principal and interest obligations. As household debt is high in Canada, people face higher costs for both mortgage and consumer debt.
RBC forecasts that the average disposable income per household before debt-service payments will grow by $2,300 this year. That means after Canadians service their debt, the average household will end up with $1,300 more in 2019.
The debt-to-income ratio for Vancouver residents jumped to 242 per cent in the second quarter of last year, while it was 208 per cent for Toronto residents, according to the CMHC.
That means that for every $1 of disposable income, people owed $2.42 in Vancouver and $2.08 in Toronto.
The CMHC said that a major contributor to increasing levels of indebtedness was mortgage debt, which accounts for two-thirds of all outstanding household debt in Canada. Now that is something that will be keeping many people up at night in 2019. -CINEWS