Ontario's Housing Affordability Declines as Housing Slowdown Continues

Ontario's housing market witnessed a mild drop in affordability across all classes.

While the province continues to see signs of a soft landing for its housing market, there was still some marked deterioration. Despite income gains of about $50 per month this quarter, it was not enough to offset higher mortgage rates and higher
utility costs, which helped drive up the cost of owning a home in Ontario.

Housing Affordability Index, which measures the proportion of pre-tax household income needed to service the costs of owning a home, deteriorated for the benchmark detached bungalow in Ontario to 36.4 %.

A standard two-storey home in the province now requires about 41.8 % of household income and a standard townhouse absorbs about 29.7 %. However for the first quarter of 2006, the cost required to maintain a standard condo jumped to 27.1 % of household income.

The condo sector saw prices jump 7 % from the previous year, with the average price of a condo in Ontario at about $206,453. This price jump has enabled condo owners to realize about 3.5 % gains in the value of their units in one quarter alone.

Meanwhile, the pace of price appreciation for other housing classes appears to be slowing. The cost of a two-storey home and a townhouse declined for the first quarter, compared to the previous.

Residential permits and housing starts retreated in 2005 and have continued to weaken in 2006. March permits dropped 10 per cent and April starts were down 22 per cent from the previous year, continuing to reinforce expectations of a slowdown in Ontario's hot housing market.

In Toronto, two-storey homes saw a mild affordability improvement as prices dipped this quarter, while other housing classes deteriorated. The condo sector felt the sharpest affordability erosion as a result of higher prices, higher mortgage rates and higher monthly utility costs.

Long-term indicators suggest that overall price increases in Toronto are continuing to cool from the 7 to 10 % range over the past couple of years down to the 3 to 5 % range more recently.

In Ottawa, there was little change in affordability but all home classes experienced some form of mild deterioration for a second consecutive quarter.

While the detached bungalow and condo sectors both witnessed declining prices for the first quarter of 2006, year-over-year price appreciation remained healthy. To date, Ottawa has avoided the volatility in affordability conditions that other regions have experienced and continues to offer a relatively stable housing market to homebuyers.