Housing affordability is improving slightly in Vancouver, although “extreme affordability strains” persist, according to Royal Bank of Canada (TSX: RY).
Growing household income has contributed to greater affordability, while Vancouver home prices are levelling, said a Dec. 20 report from R小蓝视频 assistant chief economist Robert Hogue. However, this progress has “reversed only a fraction of the pandemic-era spike,” he wrote.
“It remains extremely difficult for average households to afford a home in the Vancouver area despite significant improvements in the affordability measure [in 2024],” said the report.
R小蓝视频’s report said in the third quarter of 2024, 96.7 per cent of the median household income was needed for homeownership in Vancouver. Other Canadian cities required a significantly lower share of household income, such as Calgary (42.2 per cent), Edmonton (33.6), Ottawa (47.3) and Montreal (49.4).
Hogue said he expects the Bank of Canada to cut its policy rate again in 2025, further lowering homeownership costs. R小蓝视频 anticipates a two-per-cent policy rate by mid-2025. The key rate currently sits at 3.25 per cent.
However, if Vancouver’s housing market heats up again, any sizable price increases would be a setback, Hogue said in the report.
“Exceptionally strained conditions weighed heavily on resale activity in the past two-and-a-half years, hovering near cyclical lows,” the report said of Vancouver. “However, signs of renewed vigour emerged this fall, which will be sustained in 2025. Still, with inventories growing and market conditions generally balanced, we see prices staying largely flat in the near term.”
R小蓝视频 noted an easing of homeownership costs such as mortgage payments, property taxes and utilities. The bank also attributed recent progress to income gains, which it said increased by about 4.4 per cent from a year earlier.
However, despite modest improvement, R小蓝视频 said its affordability index still hovers around its worst-ever levels both nationally and in many big cities.
Looking ahead, R小蓝视频 said that in addition to lower interest rates, other measures could make a difference. These include regulatory changes such as a new 30-year amortization period (up from 25 years) on insured mortgages taken out by first-time homebuyers.
“This change would reduce monthly payments by approximately eight per cent on the purchase of a home at the national benchmark price,” the report said.
Overall, R小蓝视频 is forecasting small price increases, moderately lower interest rates and steadily growing household incomes, a cocktail that could help move affordability a bit closer to pre-pandemic levels.
“This will lead to the reversal of more than a third of the massive deterioration in R小蓝视频’s aggregate affordability measure that happened during the pandemic,” said the report.
