We’re number 1! (in lack of affordability)

RBC just release a report on housing affordability in canada. There’s a story in the Globe and Mail:

“In the third quarter, “Alberta and British Columbia had the sharpest erosions in affordability, driven largely by double-digit annual price gains,” the Royal Bank division said Tuesday. “However, Alberta’s soaring price gains still leave the province below past affordability stress points.”

Housing in Calgary and Edmonton remains more affordable than in Toronto, Montreal and Vancouver, relative to incomes.

“Vancouver, however, is entering uncharted waters as it sets new records for poor housing affordability in two out of four classes, and the other two will likely do so later this year,” the report says.”

See? Vancouver is number one in lack of housing affordability with a record-setting level of unaffordability. I’m sure that comes as a big suprise to everyone here.

“The RBC Affordability Index measures the proportion of pre-tax household income needed to service the costs of owning a home.

The higher the index, the more costly it is to afford a home. For example, an Affordability Index of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.

The most affordable housing class remains the standard condo, with an index of 27.5 per cent.

A standard townhouse is next at 31.4 per cent, followed by a detached bungalow at 39.4 per cent. A standard two-storey home is still the least affordable housing type in the country with an index reading of 44.8 per cent.”

So those numbers are for all of canada, what do the numbers look like for affordability in just the west, specifically in Vancouver? Ah, here we are:

“RBC Affordability Index for a detached bungalow for Canada’s largest cities is as follows: Vancouver 68.2 per cent, Toronto 43.9 per cent, Montreal 36 per cent, Calgary 34.6 per cent and Ottawa 30.3 per cent.”

68.2 percent of the average pre-tax income.. I wonder why they use pre-tax income? It’s not like you can write off your mortgage here like you can in the states.

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[…] held as investments by non residents. RBC’s affordability index ranks Vancouver as the #1 least affordable place to live in Canada. RBC’s index is based on 2 values, people’s mortgage payments and their incomes. The […]

Anonymous
Anonymous
14 years ago

Yale's Shiller warns of consequencesU.S. real estate crash could cause global rippleshttp://tinyurl.com/m88nq"Real estate price swings used to be local phenomena, he added, restricted to cities or regions. Now, such movements can affect entire countries and, in the case of the U.S., where the value of residential real estate held by households and non-profit organizations was an estimated $21.6-trillion at the end of 2005, influence the economies of other nations. While he mentioned no other countries by name, Canada is the largest U.S. trading partner.""Lower confidence translates into lower demand for home furnishings, construction materials and, in the worst case, interest rate cuts meant to stimulate demand but which have little effect as consumers sit on their wallets, he added.That's [U.S. States Federal Reserve Board chairman] Ben Bernanke's worst fear — that you cut interest rates to zero and hit a… Read more »

Anonymous
Anonymous
14 years ago

I have friends suffering from stretching themselves too thin regarding their mortgages. A few of them bought a couple of years ago and, basically, sold their soul to the devil. They have swanky places and all but cannot afford to do much. They are starting to complain about not affording to live life. What were these types of people thinking when they agreed to buy at these prices????

Swirlyman
Swirlyman
14 years ago

Out of curiosity, I googled the phrase "priced out forever", and the TOP TWO results are from van-housing.blogspot.com, and the 8th and 9th results are from this very blog.Others in the top ten include the seattlebubble blog, the socalbubble blog, the sonomahousingbubble blog, and the housingpanic blog.

dingus
dingus
14 years ago

The underlying pheonomenon in 2 is similar in all cities, so there is a comparison. In fact that's kinda what the stat is telling you. How far of a deviation from the average (or median, I forget) income purchasers are. And we are far and away from any other city on this score. Does that have implications for the market? I'd think so. The phenomenon in 1 (suites) skews the affordability even worse, because you are getting less for the money. Instead of a SFH with a basement rec room, laundry room and storage, you are getting less sf to live in. You are buying 2 suites and living in one.

Freako
Freako
14 years ago

The part I don't understand is that bankers insist on 40% total debt load to grant you a home loan.1. Suites2. Median income of recent SFH owner is probably much higher than median income overall. I highly doubt that the median income would buy the median SFH. Thus we are looking at apples and oranges. SFH in Vancouver are, will remain, and should be unaffordable to the median income. That is what the burbs are for, and I don't mean that in a disrespectful way. Still a ridiculously high number though.

Anonymous
Anonymous
14 years ago

The part I don't understand is that bankers insist on 40% total debt load to grant you a home loan.We have the record high debt load ratios, lowest historical affordability, 0% down mortgages are now possible (with your downpayment coming out of your cerdit cards or line of credit) and at the same time the guys from RBC say that they approvrd more mortgage applications this year then the year before…HOW THE HELL IS THIS POSSIBLE???Dope growers, drug dealers, foreign inverstors and all other money-laundering "enterpreneurs" are buying real estate for cash. So who is getting these mortgages??? The present owners with lots of equity in their present properties upgrading to the next level? But who is buying the houses they're selling?Dope growers?I guess so.

dingus
dingus
14 years ago

Makes sense, thanks. Too lazy to look up what the number actually measured. And I agree with the conclusion. How can you sustain a market where the average new buyer would have to spend 100% of their take-home for shelter? (Try asking your banker for a mortgage which pushes debt service to 68% of your gross income.)

betamax
betamax
14 years ago

I don't get how you can spend 68% of pretax income on one thing. As the last anonymous said, isn't that ALMOST ALL of your aftertax income????True, but the 68% pretax figure is compared against current housing prices, and most homeowners did not pay current prices for housing.Perhaps the stats affirm that most owners couldn't afford to buy their own house at today's prices. If so, then current prices are clearly unsustainable and the much-predicted 'soft landing' (continued single-digit appreciation) is clearly not going to take place.

Swirlyman
Swirlyman
14 years ago

By "income" they are likely excluding income derived from condo-flipping, which we all know is much more respectable and profitable than being a wage slave, and of course they are also excluding incomes from grow-ops…

dingus
dingus
14 years ago

I don't get how you can spend 68% of pretax income on one thing. As the last anonymous said, isn't that ALMOST ALL of your aftertax income???? Does not compute. What's left to live on??? Line of credit? Must be something around how this is determined.

Anonymous
Anonymous
14 years ago

Quote:"RBC Affordability Index for a detached bungalow for Canada's largest cities is as follows: Vancouver 68.2 per cent, Toronto 43.9 per cent, Montreal 36 per cent, Calgary 34.6 per cent and Ottawa 30.3 per cent."These numbers are quite an eye-opener… Thats 68.2 percent of your PRETAX income…that would amount to what?… 95% after tax?And that is IF the buyers actually paid 25% down… which nobody does nowadays. More like 5% or perhaps just use the credit card. What is the index then???

Anonymous
Anonymous
14 years ago

awesome title – i lol’d even before i read the article!!

Anonymous
Anonymous
14 years ago

awesome title – i lol'd even before i read the article!!

Anonymous
Anonymous
14 years ago

Anonymous 11:23AMWhen you graduate from high school you'll be able to put your amazing theory to work. Is this guy for real?

Anonymous
Anonymous
14 years ago

Quote:It's expensive here because its desireable and there are some hardworking people that are willing to pay the cost of living here. Oh sure. Just keep on repeating it to yourself and it will come true, eventually.Lately I've been seeing grow equipment for sale ads on Craigslist… unbelievable.

richard
richard
14 years ago

You're full of empathy aren't you? It's not necessarily about working hard. Some of the hardest working people in this city are very poorly paid, but when you are just scraping by and have bills to pay and a family support you may not have the luxury of walking away from a situation like that.The real question is if affordability is THAT far away from the average income, whats that going to do to future demand?

Anonymous
Anonymous
14 years ago

So? Who cares about average, just work harder and anything is attainable. It's expensive here because its desireable and there are some hardworking people that are willing to pay the cost of living here.