Housing affordability improves for first time in 2 years

There was an improvement in Canada’s housing affordability measure at the end of 2017.

It was the first time in two years that RBC Economics Research’s Housing Trends and Affordability Report has shown a decrease in its aggregate measure, albeit just 0.2 percentage points nationally to 48.3%.

As the measure is shown as the share of household income that would be required to carry the costs of owning a home at market price, a decrease indicates improving affordability.

Toronto saw a larger decrease in the measure, down 2.3 percentage points to 75.1%, but it is unlikely to have a meaningful effect.

“We expect the relief to Toronto ownership costs that ensued from the introduction of Ontario’s Fair Housing Plan to be short-lived,” said Craig Wright, Senior Vice-President and Chief Economist at RBC. “Our view is that Toronto prices will bottom out sometime this spring. Then we expect further interest rate hikes through the remainder of this year, which has the potential to stress housing affordability markedly in Canada.”

The report shows that affordability worsened in BC with Vancouver and Victoria both seeing higher prices in the last quarter of 2017, with the aggregate affordability measure rising 1.8 and 0.5 percentage points respectively.

“Unfortunately, Vancouver homebuyers are being challenged by the worst affordability levels ever recorded in Canada,” said Wright. “The costs of owning a home at today’s prices would have represented an astounding 85.2% of a typical household’s income in the fourth quarter. In this context, it wasn’t a surprise to see the BC government announced further housing policy initiatives to cool the market in its 2018 budget.”

Affordability also weakened in Montreal for the ninth time in the past ten quarters, denting its reputation as an affordable market.

The picture has changed little for housing markets in the Prairies and Atlantic Canada. Home ownership costs have remained largely stable though, a small increase in mortgage rates contributed to a slight deterioration in affordability within these regions in the fourth quarter.

Sharp fall for Canadian home sales

The number of homes sold nationwide in January was down sharply from the previous month.

New figures from the Canadian Real Estate Association show a 14.5% decline month-over-month (39,609) from December’s record high monthly record (46,352). There was a 2.4% drop year-over-year in actual (not seasonal) activity.

“The piling on of yet more mortgage rule changes that took effect starting New Year’s Day has created homebuyer uncertainty and confusion,” said CREA President Andrew Peck. “At the same time, the changes do nothing to address government concerns about home prices that stem from an ongoing supply shortage in major markets like Vancouver and Toronto. Unless these supply shortages are addressed, concerns will persist.”

There was also a sharp drop in new listings in January, down 21.6% from December to the lowest level since spring 2009. New listings declined in 85% of markets.

The Aggregate Composite MLS HPI rose by 7.7% y-o-y in January, the 9th consecutive deceleration in y-o-y gains. It was also the smallest y-o-y increase since December 2015.

Homebuyers want automation, still want human agent

There’s a careful balance to be found between automation and humans in the real estate buying process.

Buyers want the ability to track the progress from making an offer through to the deal closing but are far from ready to do so without tapping the valuable insights that a real estate agent offers.

A survey conducted by US online real estate platform Move found that knowledge of the market and neighbourhood, together with unique perspectives from a human agent is valued by homebuyers.

Automation must be used for the right processes; for example just 14% of homebuyers said they were likely to respond to a communication that appeared to be automated.

"This is a critical time for real estate professionals," said Luke Glass, executive vice president, industry platforms for Move. "The emergence of technology and automation onto the scene has greatly improved the real estate process in some ways, yet these findings reveal that many agents are failing to leverage technology or to use it properly at key points along the journey, to the detriment of the agent-client relationship."

The survey highlights five key factors that buyers use to decide which real estate agent to choose: Honesty, local market expertise, likeable personality, personal connection, and client recommendations.