The bank credits rising household incomes, low interest rates and lower utility costs in some markets for making it a bit easier to own a home.
During the July-to-September period, RBC’s housing affordability measure at the national level fell 0.2 percentage points to 47.8 per cent for two-storey homes. It also fell for condos – down 0.3 percentage points to 27.1 per cent.
"A trend that jumped out in the latest data was a further broad improvement in affordability of condos where a strong majority of markets across Canada saw the measure for the segment fall," said RBC chief economist Craig Wright in a release.
"Condos no doubt continue to be the more affordable ownership option in every market."
The affordability measure for detached bungalows was the outlier; it rose a tenth of a percentage point to 42.6 per cent.
An affordability reading of 50 means that ownership costs, which include mortgage costs, property taxes and utility costs, would require 50 per cent of a household’s monthly gross income.
Fixed mortgage rates drop
The latest data from the Canadian Real Estate Association shows that the national average home resale price rose 7.1 per cent on a year-over-year basis in October.
The MLS home price index, which many observers consider a better indicator of home price trends, rose 5.5 per cent over the same period.
Some markets, notably Vancouver, Toronto and Calgary, have seen real estate prices rise much faster than the national average. The bank notes that it is the robust activity in these three markets that has been largely responsible for eight monthly increases in resales in the last nine months.
Affordability remains a big stretch in Vancouver and Toronto. The cost of a benchmark detached bungalow in Vancouver, for instance, requires 83.6 per cent of a typical household's pretax income to carry. In Toronto, it takes 56.3 per cent.
RBC says a drop in fixed mortgage rates earlier this year helped to drive the current strength in the housing market. But it doesn’t expect that situation to last.
"A combination of gradually increasing interest rates and higher prices will likely reverse the improvement in housing affordability that took place in the past year and weigh more and more heavily on homebuyer demand in Canada," said Wright.
"We expect the next stage of the housing cycle to be a transition toward lower resales and slower price increases."
RBC said it expects the Bank of Canada to raise its key overnight lending rates in the middle of next year, but says longer-term rates will rise "well before that."
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