Canada House Prices: Vancouver Second Least-Affordable City, International Study Says

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VANCOUVER LEAST AFFORDABLE HOUSING
Vancouver is the second-least affordable city for housing among 325 major developed cities, a new study says. | Alamy

Vancouver is the second-least affordable city for housing among 325 major developed cities, a new study says.

Only Hong Kong was found to be less affordable than Vancouver among cities in a group of countries that includes Australia, Britain, Canada, Ireland and the U.S., according to a study from Illinois-based consultancy Demographia.

The study determines affordability by comparing a city’s median income with its median home price. Historically, Western cities have had a housing-to-income ratio of around three, the study says, meaning the median house price is typically three times the median annual household income.

In Vancouver in 2011, that ratio hit 10.6; the median house cost 10.6 times the median income. Only Hong Kong was less affordable, with a ratio of 12.6.

This is not to say that Vancouver is the second-most expensive city to buy a house in the world. The study measures affordability according to earnings in each city. New York City, for example, is more expensive in real terms than Vancouver, but because incomes are higher in the Big Apple, the city ranks as more affordable. (New York City ranked 10th in the survey.)

Of the 35 metro areas in Canada that were part of the survey, all six of the largest -- Toronto, Montreal, Vancouver, Ottawa, Calgary and Edmonton -- were listed as “severely unaffordable,” meaning a ratio of more than five.

Toronto’s ratio was 5.5, and the study notes “a deterioration of 40 per cent in housing affordability since 2004.”

Montreal, which according to the study has been “one of the worst performers in housing affordability,” has seen its affordability erode by 60 per cent since 2004, the study said.

The affordability numbers add more weight to the argument that Canada’s housing market is in for a correction -- an argument that many have been making more forcefully in recent months, as evidence mounts that Canada’s long run-up of house prices is unsustainable.

The IMF last year warned that Canadians’ household debt -- which in 2011 passed 150 per cent of household income for the first time -- poses a risk to future economic growth.

Even Bank of Canada Governor Mark Carney has hinted that consumers' debt levels may be reaching unsustainable levels, although that has not dissuaded him from keeping in place the low interest rates that contribute to growing house prices.

Banks continue to engage in heavy competition for mortgage buyers, with BMO just last week announcing an all-time record low rate for a five-year fixed mortgage: 2.99 per cent. Several banks have already followed BMO’s suit.

The debate over housing has shifted from whether or not there will be a correction in the housing market to a question of how large the correction will be.

The Economist reported last year it estimates Canada’s housing market to be at least 25 per cent overvalued. But others suggest the correction will be minor, amounting to maybe a 10 per cent decrease in house prices. Among those optimists is Wall Street’s “Dr. Doom,” who surprised many last week with his rosy outlook for Canada’s economy, including a prediction that any housing market correction will be small.

The federal government has taken steps in recent years to cool the housing market by increasing the entry barriers to buying a home. Ottawa twice reduced the maximum amortization period for a mortgage insured by the Canada Mortgage and Housing Corporation, to 35 years in 2008 and then again to 30 years in 2010.

According to recent reports, the Harper government continues to be worried about an overheating housing market, and is prepared to tighten mortgage rules again if further evidence surfaces of an overheating market. New rules could include tighter regulations for how mortgage-seekers report income, as well as new, tougher rules on how to measure affordability for condo buyers, the Financial Post reported.

THE 10 LEAST AFFORDABLE CITIES FOR HOUSING

The number shown is the housing affordability ratio -- a measure that shows how much a median home costs relative to median incomes in a given city. Historically, a typical ratio has been around three.

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