If you think you've been reading the same story for the first half of 2016, you wouldn't be wrong: housing affordability in Toronto and Vancouver are at record levels yet again. RBC's Housing Trends and Affordability report came out today, and the aggregate affordability measure for Canada rose the most in six years—by 1.2 percentage points to 42.8%—this spring, thereby extending the recent streak to five straight quarterly rises.

"Undoubtedly, the Vancouver and Toronto markets get some heat from favourable economic fundamentals—including low interest rates and solid job growth—and limited supply of single-detached homes; however, robust local fundamentals, alone, cannot justify the full extent of the price escalation in Vancouver. Over-exuberant price expectations likely also have played a prominent role in propelling values on a parabolic trajectory in Vancouver."

The aggregate affordability measure for the Vancouver area rose 6.1 percentage points to a new record high of 90.3 per cent – the higher the measure, the lower the affordability. The aggregate measure for Toronto rose 2.1 percentage points to 60.2 per cent, the highest since 1990.

"Given a unique set of dynamics at play in the Vancouver-area market, the new tax in BC is unlikely to be replicated in other provinces. The situation in Toronto, while also concerning for single-detached home affordability, remains less extreme than in Vancouver, especially for condo apartments—a comparatively more affordable ownership option. Thus, policymakers have room to consider less-instantaneous courses of action in Toronto such as addressing obstacles to boosting the supply of new low-rise housing."
In Toronto, the story is still about demand far outpacing supply, but home resales have slowed since May and that new listings are beginning to appear again, what the report calls “tentative signs” that the market is slowing. “If these signs are sustained in coming months, then there may be some moderation in the pace of price increases in store later this year or early next year.”

The RBC report also makes mention of Victoria's housing market, which benefited from rising home prices over the past year, but as a result experienced a decline in affordability. Economists say that the market there may have "topped out" there, although that remains to be seen along with other fallout from Vancouver's 15 per cent land tax

“The tax may be a signal that the provincial government is now intent on engineering a cooldown of the market,” the report reads. “Area home resales had already dropped by more than 20 per cent (from their all-time peak in February 2016) prior to the announcement of the new tax. Any shift in market expectations resulting from the tax may precipitate a further near-term weakening."

As for the rest of the country, Calgary, Saint John, and Halifax are the most affordable, although in some cases, economic distress is also to blame. Calgary in particular is in a tight spot, as the improvement in affordability there is largely lost in the conversation because from April 2015 to April 2016, more people have been moving out of the city than moving in – only the second time that has happened in 25 years. In Saskatoon, home prices rose slightly, although the slump in economy there means that household incomes haven't risen to match. Winnipeg, Manitoba, Montreal, and Regina remained fairly neutral.
"Looking ahead, we expect housing affordability to remain divided across Canada between highly stressed conditions in Vancouver and Toronto, and relatively neutral conditions in the majority of other markets. With that said, signs of cooling resale activity have emerged in Vancouver and, more tentatively, Toronto that we believe will slow the pace of property appreciation by year-end 2016 in both markets. This is unlikely to help near-term affordability given current demand-supply tightness; however, some relief could come by late 2016 or early 2017."

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