Following a once considered inconceivable decline in home prices across Greater Vancouver, housing affordability is unsurprisingly improving. Indeed the team at RBC Economics has caught on, updating their latest affordability index.
RBC summarized the changing dynamic in the nations most expensive property market, “The Vancouver-area housing market is in full-blown correction mode. Home resales have plummeted 58% since the peak in early 2016 with no sign of a turnaround so far in 2019. While various policy measures triggered and sustained the correction, Vancouver’s ongoing affordability crisis explains most its magnitude. The demand-supply balance now favours buyers and prices are falling. This helped RBC’s aggregate affordability measure to improve by 2.6 percentage points in the fourth quarter. With ownership cost still representing 84.7% of household income, we’re still a long way from the end of the crisis.”
The recent pullback in home prices, which as of February saw Greater Vancouver detached home prices slide 9.7% year-over-year, and condos dip 4% from last year should come as no surprise given the bout of policy measures and rather benign mortgage credit growth, which is expected to continue as the economic outlook slows and the yield curve inverts.
Affordability pressures, however, remain elevated- particularly in the condo segment where a significant premium still exists over current rent prices. “The intense affordability pressures present in some of Canada’s largest markets over the past few years have driven up demand for condos. This is because an increasing number of buyers have been shut out of the higher-priced single-family home categories and turned their focus toward lower-priced options—mainly condos. Trouble is, this stronger demand for condos resulted in sharper price gains and affordability erosion.”
However, with mortgage costs subsiding and a record number of new construction condos en route, inventory continues to outpace sales, affordability pressures will surely ease across all segments in the year ahead. This was of course something I suggested would happen back in January when consensus was calling for rising mortgage costs to offset the decline in home prices.