08/27/2012 12:09 EDT | Updated 10/27/2012 05:12 EDT

Housing affordability eroding, RBC says

Higher home prices coupled with slightly higher mortgage rates to make home ownership slightly less affordable over the past three months, Canada's largest bank said Monday.

Housing got less affordable in the bungalow and two-storey home segment, but remained flat in the condominium market, Royal Bank of Canada said in its latest quarterly Housing Trends And Affordability report.

It was the second straight quarter that affordability eroded. Affordability actually improved for the latter part of 2011, the bank calculated.

The bank's report attempts to move beyond the topline housing price in calculating how affordable housing is. RBC's calculations also consider factors like mortgage rates and income levels in order to determine if it's getting easier or harder for Canadians to own a home.

The Canadian Real Estate Association has repeatedly warned that its national averages have been skewed by the active Vancouver market. And that city is factoring into RBC's calculations too.

"The erosion in the single-family home categories in the past two quarters pushed the levels of these measures further above their long-term averages in Canada," the bank said. "However, national figures are exaggerated by extremely poor affordability in the Vancouver-area market."

Vancouver remains the least affordable city in the country in which to buy a home. Indeed, the bank figures affordability in the Vancouver area has now dropped "to levels that stood very close to the worst on record."

Indeed, Vancouver is skewing the numbers for the rest of the province. In Victoria, for example, the bank figures the percentage of income needed to carry the costs of a mortgage at market prices is almost half the share in Vancouver for some housing types.

The bank says the Toronto market has seen a pullback in affordability, but not to the same level as Vancouver.

"While homeownership costs in Canada’s most populous city take on larger shares of household income currently than it has been the case on average historically, these shares remained well below the peaks at the time of the housing bubble of the late 1980s," the bank said.

Across Ontario as a whole, "owning a home took a slightly larger share of households’ income in the second quarter, thereby extending the modest rising trends since 2009," the bank noted.