Canada’s housing market remained hot in the first quarter of 2003 despite a slight deterioration in affordability, according to the new Housing Affordability Index released Tuesday by RBC Economics.

RBC’s Housing Affordability Index – which measures the proportion of pre-tax household income needed to service the costs of owning a home – edged up to 32.5% from 32.1% in the final quarter of 2002.

This translates into $1,264 in average Canadian ownership costs, ranging from a low of $923 in the Atlantic region to a high of $1,586 in British Columbia.

“Rising prices due to tight market condition across the country, and to a lesser extent higher utility costs during the quarter, were the primary factors for the deterioration in affordability,” said Carl Gomez, RBC economist. However, solid underlying fundamentals, namely healthy income growth, have kept Canada’s housing market strong. Affordability remains at very reasonable levels relative to history.”

According to the report, housing affordability is expected to remain steady for much of 2003 as resale market conditions balance out, increases in new home construction contain price increases, income growth remains solid, and borrowing costs rise modestly.

The Housing Affordability Index is based on the costs of owning a detached bungalow, a typical target home for first-time buyers. The higher the index, the more difficult it is to afford a house.

For example, an affordability index of 50% means that home ownership costs, including mortgage payments, utilities and property taxes, take up 50% of a typical household’s pre-tax income.

According to the report, high home prices across the country should lessen as new listings for existing homes increase and sales activity in some regions moderate. This, together with an increase in the supply of new housing coming to market, will likely dampen pricing pressures moving forward.

RBC’s affordability index in Canada’s three largest cities breaks down as follows for the first quarter of 2003: Vancouver (49.4%), Toronto (39.7%) and Montreal (30.1%).

The full RBC Housing Affordability Index report is available online at
www.rbc.com/economics/market/pdf/house.pdf