Housing affordability is looking “grim” for homebuyers — especially those on the West Coast – going into 2022, according to a new report from economists at the Royal Bank of Canada (TSX:RY).
“[Metro Vancouver] still reigns supreme as Canada’s least affordable market,” Friday’s report stated.
RBC estimates the average household in the region must allocate 64.3% of income to cover homeownership costs, as of the third quarter of 2021. Only Toronto’s proportion of household income — 61.9% — comes close to rivalling Vancouver’s.
“The outlook for buyers is grim,” the bank said in its Friday report, referring to the broader national trend of ownership costs accounting for 47.5% of household income on average.
“We estimate rising interest rates alone could drive up our national affordability measure another 2-3.5 percentage points over the coming year. A further 5% increase in home prices would add an extra two percentage points.”
Victoria is Canada’s third-least affordable market after Vancouver and Toronto.
The bank estimates homeowners in the provincial capital must allocate 49.1% of household income to cover ownership costs.
“Ownership costs are poised to rise further in the near term as exceptionally tight demand-supply conditions force buyers to bid aggressively,” the report said about Victoria.
The bank said the lack of affordability is stemming from “supercharged” demand, while inventories sit at near-historic lows in virtually every market, “creating intense competition between buyers and [pressuring] prices up.
“These conditions have widely eroded housing affordability in the past year.”
Prospective buyers will cope by either commuting significantly longer distances to land their preferred type of property or else scale down the type of property they’re in the market for, according to RBC.
“Because of already challenging conditions and the fact that rising interest rates will push up ownership costs more in Canada’s priciest markets, we expect buyers in Vancouver, Toronto, Victoria and, to a lesser extent, Ottawa and Montreal to be under the most pressure to reset their expectations,” the report stated.