Edmonton: Most Affordable Major City in Canada

Unlike most other major centres across Canada, housing affordability in Alberta remained stable in the first quarter of 2011, according to the latest Housing Trends and Affordability report issued by RBC Economics Research.

RBC's housing affordability measure in Canada's largest cities is as follows: Vancouver 72.1%, Toronto 47.5%, Montreal 43.1%, Ottawa 39.0%, Calgary 35.9% and Edmonton 31.5%. That means it taks 31.5% of monthly income in Edmonton to own an average detached bungalow, including taxes, utilities and mortgage payments. Meanwhile in Vancouver it would eat up 72.1% of your monthly income. 

"The Alberta market continued to be stuck in low gear in the first quarter of 2011. Sales of existing homes and construction of new housing units showed very modest increases," said Robert Hogue, senior economist, RBC. "While market conditions have become more balanced in recent months, owning a home doesn't seem to be getting more expensive in the provincial market at this stage. Affordability levels are still looking quite attractive."

RBC's housing affordability measures remained relatively unchanged, and below their long-term averages in the first quarter of 2011 in Alberta. The measure for the benchmark detached bungalow in the province moved up to 31.3% (an increase of 0.4% from the previous quarter), the standard condominium stayed flat at 20.2% and the standard two-storey home fell to 34.2% (down by 0.2 of a percentage point).

RBC's report notes that there are signs that the Calgary housing market is finally overcoming its protracted slump. "Calgary home prices have yet to break out of their listless trends, but they rose at their fastest rate in more than a year in the first quarter, with detached bungalows leading the way," said Hogue. "Firmer market conditions and higher prices had only limited impact on Calgary's affordability, which remains among the most attractive of Canada's major cities." (This was interpreted by a Calgary reporter to mean that Calgary is THE most attractive of Canada's major cities). 

They did not make any comments (that I could find) on the Edmonton market, even though it was the most affordable in their study. I assume that is because Edmonton is not yet showing signs of coming out of its "slump." I would suspect that will make us even more affordable next quarter (relative to other major cities). 

The majority of Canadian markets experienced weakened affordability in the first quarter of 2011. "Despite the latest erosion in affordability, provincial levels generally continue to stand near their long-term averages, suggesting that owning a home remains affordable or, at worst, slightly unaffordable across Canada - with Vancouver being a notable exception," said Hogue.

About 

Sara MacLennan is the Director of Marketing at Liv Real Estate and a licensed Real Estate Associate. The bulk of Sara’s experience and wealth of expertise lies in on-line technology and marketing both for agents and consumers. Sara is the former National Director for Interactive Marketing for Coldwell Banker Canada where she was responsible for an extensive training program traveling to offices across the country training agents and brokers on marketing and technology. Find Sara on Twitter @edmontonblogger.

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34 Responses to “Edmonton: Most Affordable Major City in Canada”

  1. WaitLongerNo Gravatar 20. May, 2011 at 3:10 pm #

    Interesting article.
    However, the affordability index is a weird one. I’ve always wondered why all these calculations are done with before tax income. For example, I go to bank, and they ask for my gross income, not net after tax? That never makes sense to me. Makes more sense to just subtract the 25% right off the top as that belongs to the government and is not available to buy a home (unless you evade taxes). To me it just seems that I’ll get approved for +25% more than I should.

    Also, the index doesn’t take into consideration other debt. So while it might appear that Edmonton is affordable, it’s actually not so much for the average family. Most families cannot afford a 20-25% down payment used in their calculations anyhow.

    If you lower the down payment, increase the amortization, you will actually lower the rate even more. Of course, a lot of people seem to think this is a good thing, because everyone always looks at the monthly payment. People need to step back an look at the big picture. Are you prepared to 200-400K in interest on a 350K house?

    • DaBullNo Gravatar 20. May, 2011 at 8:45 pm #

      I think the banks already factor in a minimum of 33% for tax. Not 25%. Think it goes like this 1/3 housing cost, 1/3 to the Government and 1/3 left over to eat, drink, save and be merry.

  2. Ms MarieNo Gravatar 20. May, 2011 at 3:27 pm #

    I totally agree with wait longer. They should use a more realistic down paymnent of 5-10%. The level of debt stats don’t point towards first time owners being able to come up with a 25%. My Banker even told me that the majority of new buyers, are opting for the 30 year ammortization, instead of 25.

    Not to mention that Alberta has the highest forclosure rate of any province in Canada.

    So while the report has favorable numbers, I think there are other factors to consider as well.

    • ItchyNo Gravatar 20. May, 2011 at 5:28 pm #

      I’m not sure how they arrive at their calculations. Is it only house price divided by gross income times interest rate, or is their other factors? However it doesn’t make any difference to the fact that Edmonton is the most affordable of the cities studied in Canada. The most important thing is that they use the same formula for all cities studied. The more surprising snippet for me was the fact that we’re below the long term average on affordability. As long as they’re using the same calculations as they have been for the last 25-30 years, I think that’s the more significant thing. This has a lot to do with where interest rates are though. Once they go up 200 basis points, we’ll see how things are affordability wise.

      • DaBullNo Gravatar 20. May, 2011 at 9:22 pm #

        200 basis points would add $113.26 to $122.50 per month (depending on starting rate, 3.9 or 5.9 up 2% to 5.9 or 7.9) per $100,000 of mortgage. You would need around $2,070 to $2,227 before tax wage increase per year per $100.000 of mortgage to cover an instant 200 basis point hike in interest rates.

        The average Edmonton property is selling for 350k and the median income is $97,000. So you would need either an 8% wage increase over a year or 4% a year over 2 years or even less as years go by.

        We all know that interest rates when they do go up will not go up 200 basis over night, it could take years for that to happen, I would guess a minimum of 2 and a max of 5.

        So over all the numbers aren’t that bad, even with a known interest rate hike coming.

        Ms Marie

        The high arrears are what happens in boom bust economies. One minute you got the bull by the horns and the next minute it’s runs you down and gores you to death. Most people in Alberta will survive, a few won’t, that’s life.

        The next boom has already begun and I can’t see much on the horizon to derail this one this time.

        • ItchyNo Gravatar 21. May, 2011 at 6:09 am #

          I think it will be 2 years before we see a 200 basis point move on rates also. Not likely a move til 4th quarter this year. A lot depends on the U.S. and when they move….I don’t think they want a cdn dollar at 1.15 to the U.S. When they start to move though, it’ll happen quickly for 100 basis points and then probably a pause. But, all things being equal, it will bring our affordability down.

          • Sara MacLennanNo Gravatar 21. May, 2011 at 11:41 am #

            That could very well happen… the mortgage rate hike would affect affordability more in cities with higher average prices though.

        • Makoto OhkiNo Gravatar 21. May, 2011 at 9:35 pm #

          “The next boom has already begun and I can’t see much on the horizon to derail this one this time.”

          Ok – maybe YOU can’t see much, but I think I can. My opinion comes from the fact that everything in the world is now connected – finance, commodities, production, food, etc, etc.

          If you turn your attention south of the border, you’re seeing a country staying a float only because the U.S. is running a deficit of over $1,500,000,000,000 per year.

          As big as that elephant is in the room, it’s hardly noticeable with so many other elephants hanging around.

          Alberta is a great place to live, but keep your eyes and years open as events outside our happy little enclave continue to affect us more and more. For example, I think my hands are getting bigger and bigger, cause every time I pick up a chocolate bar – it is smaller than the last time! And I can even grab 3 cereal boxes with one hand!

          M.

        • Old BallsNo Gravatar 22. May, 2011 at 8:10 am #

          “200 basis points would add $113.26 to $122.50 per month (depending on starting rate, 3.9 or 5.9 up 2% to 5.9 or 7.9) per $100,000 of mortgage.”

          Da Bull,

          Your numbers seem pretty reasonable, but I would hardly describe the situation you present as ideal. Having all, or the majority of all of my wage increases, over course of several years, being eaten up by my increasing mortgage payment is hardly ideal for making forward progress. Then again, these days most people seem to judge financial success by the amount they’ve managed to leverage themselves.

          For one moment, let’s assume we see these monthly payment increases occur with the price of gas climbing up to 1.50 L (very likely), the price of food increasing another 5-10 percent (again very likely), the price of electricity increasing 30-60 percent (likely), increases in taxes (questionable)…Feel free to add to this list.

          • DaBullNo Gravatar 22. May, 2011 at 7:36 pm #

            Gas @ 1.50… drive less or plan your trips…. problem solve.
            Food increasing… eat out less, buy no name. look for deals, use coupons… problem solved
            Electricity increasing….?????… Maybe, most electricity in Alberta comes from coal fired plants, so unless coal is going to go through the roof…. no problem.
            Taxes up…. In Alberta not likely ????? User fees… Yes.
            Taxes in Canada…. Not with a Tory majority.

            As far as the interest rate increases go, I was just trying to point out that it can be done. Besides most people take out 5 year terms so they don’t have to worry about it for a few more years. Those the took out mortgages 4 or 5 years ago are paying a higher interest rate already. Those that are on HELOC’s or term less variable could easyly handle 200+ basis points raise.

            Those that bought and are living on the edge. Good luck to them. Those types are nothing new, they have been around longer than I have been alive and will still be around long after I’m gone. The how the world works. So want it to look like they have everything when in reality they have nothing.

        • A McNo Gravatar 22. May, 2011 at 11:19 am #

          Good analysis!! I agree 100%

      • TonyNo Gravatar 29. May, 2011 at 2:42 pm #

        Interest rates are declining and will likely continue to decline for an extended period of time as rates plunge in America and Canadian banks tighten lending policies.

        • DavidNo Gravatar 29. May, 2011 at 4:55 pm #

          uh… if you tighten lending policy, it means that you lend to LESS people which is done by INCREASING rates. Decreasing interests rates will make borrowing available to more people…

          As for the interest rate increase, who knows what might happen in the US. Even though the Fed is not increasing its base rate, it doesn’t mean that the investors will continue to finance the US government debt at a discount forever. When it will stop, rates will increase throughout the Western Hemisphere, no matter where you sit. Is it the scenario most likely to occur? Probably not. Possible? Definitely in the distribution somewhere. Just like the likeliness of a big bank like Lehman Brothers to go bankrupt or for a major financial crisis to occur back in 2006.

    • Sara MacLennanNo Gravatar 21. May, 2011 at 11:43 am #

      The important thing is that they use the same calculation for all the cities. This study is not about applying for or being approved for a mortgage, it is a way of comparing the cost of living in different cities.

  3. Karl HungusNo Gravatar 20. May, 2011 at 9:04 pm #

    Well I think they use the gross because you did actually earn all that money. Some people end up with different tax deductions so they would qualify for more money. The lender doesnt know how much tax you actually pay, so its easier to just use the gross. But, Im just guessing.

  4. SasquatchNo Gravatar 20. May, 2011 at 11:09 pm #

    The interesting aspect of the study is that they use bungalows as the basis for affordability, most of our housing market isn’t comprised of bungalows and I believe the average price is in the low 300s for such a home. So basically it’s saying the lower end of the real estate market is affordable on an average income. This.study doesn’t really speak to the market as a whole.

    It does also mention an arrears rate at generational highs specifically in AB which doesn’t square with it’s conclusions on affordability, I suspect because many on average incomes have not purchased the affordable bungalow RBC references but the pricier suburban two storey.

    • DaBullNo Gravatar 21. May, 2011 at 8:59 am #

      I thought bungalows, per sq/ft, were always more expensive than 2 stories… Maybe Sara or Sheldon could answer that question.

      • Sara MacLennanNo Gravatar 21. May, 2011 at 11:39 am #

        It would depend on the size of the home… in general the larger the home the lower the per square foot cost. A 2000 sq ft bungalow would typically be quite a bit more expensive than a 2000 sq ft 2-story… the bungalow has 4000 sq ft of total space while the 2-story would have around 3000. On a per sq ft cost that same bungalow would likely cost less.

      • SasquatchNo Gravatar 21. May, 2011 at 2:29 pm #

        On a per square foot basis they probably are more expensive, but they are also smaller then most multi level homes so the average home price would be cheaper for a bunglow despite the higher square foot price.

        Also many of Edmontons bungalows were built pre seventies (the advent of the split level) so they are most common in older neighborhoods close to the cities core which are in many cases cheaper then the suburban neighborhoods that are full of multilevel homes.

        I don’t know for sure but based on observation I’d guess there are more two stories then buglalows in edmonton (ie a quick mls search shows 1300 of 3700 homes for sale are 1 storey). Conclusion being the affordability metric is based on a 1/3 of the homes here

  5. GMNo Gravatar 22. May, 2011 at 1:55 am #

    BOTTOM LINE:

    Buy now. This is your chance to get in before it takes off again.

    • bradNo Gravatar 22. May, 2011 at 10:13 am #

      Anything to back this statement up GM? I beg to differ.
      Amazes me how people fail to see the writings on the wall.
      First link is a historical chart of Bank of Canada’s interest rates they only have one way to go from here guess which way.

      link to bcrealtor.com

      The second link originally poseted by Makoto Ohki

      link to picasaweb.google.com

      If that isnt a price bubble I dont know what is.

      Like I said can anyone tell me why as a first time home buyer in Edmonton I should buy now??

      • Makoto OhkiNo Gravatar 23. May, 2011 at 3:30 pm #

        Brad:
        Here’s another link with both family income and house values in 2008 constant dollars (from 1962 – 2010):
        link to picasaweb.google.com

        There’s still a pop, but better gives a better historical perspective.

        M.

      • GMNo Gravatar 23. May, 2011 at 5:18 pm #

        Okay, you win. Keep renting and wait for the house prices to come back to historical norms, which are around what… $100,000?

        Might happen.

      • DaBullNo Gravatar 23. May, 2011 at 9:57 pm #

        The second link originally poseted by Makoto Ohki

        from the bottom of the graph

        NOTE: THE AVERAGE FAMILY INCOME IS IN 2008 CONSTANT DOLLARS.

        …. but the average Edmonton real estate price wasn’t.

        Second graph is better, to bad it stops at 2008. It also shows just how undervalued real estate was from 1980 to 2005 in Edmonton. Under 2.0 times average income for 16 years…. gimme a break, that’s beyond cheap.

      • TonyNo Gravatar 29. May, 2011 at 2:52 pm #

        Simple reason many of the condominiums and townhouses in Edmonton have fallen 50 percent or more since the June 2007 peak. Housing prices have risen in the major cities since 1997 and have only backtracked in Alberta. Oil is above 100 dollars U.S. a barrel and satellite communities cost more now than the core of Edmonton. Land prices have plunged around 80 percent in Leduc. Most of this is because of sheer stupidity. If the rest of the country sees no collapse in house prices neither should Alberta. The place to buy obviously is in the West and Southwest parts of Edmonton.

  6. Old BallsNo Gravatar 22. May, 2011 at 8:43 am #

    I have several younger friends who “jumped on the bandwagon” listening to this mantra. One couple just bought for 380,000. She’s just finishing up a masters, her finance just graduated from engineering. They likely have good earning potential but between mortgage and student loans I guess their sitting on about 450,000 in liabilities. My guess is they will make it, but I was stunned to hear the bank just dumped a pile of money on their laps. 5/35 mortgage.

    Another couple, both just graduated from undergrad degrees. Spotty income, large amounts of student debt. Bank is currently humping their legs to give them a mortgage loan. They are borrowing money from their parents for a 5 percent down payment. Not so sure about this pair. At a party I was just at, she was telling me how “we should buy now before it’s too late!”. I just smiled and nodded, like I always do when people give me this “winning advice”. I asked her about what she was going to do when her mortgage was up for renewal in 5 years and rates are 2 percent higher. Her response: “Really? You think interest rates are going to increase?”. I then asked her if she thought about any of the other costs of ownership, utilities, maintenance, property taxes. Her response: “I hadn’t thought about that…”. I then asked her about what they were going to do if they had to move (high probability in our profession) and if the house was worth less than what they paid for it. Her response: “That’s impossible, Real Estate always increases in value!”.

    I smiled and nodded and grabbed another beer.

    Just because I have 5 or 6 different stocks and investment products I want to buy, it isn’t an excuse for me to run out to the bank borrow the money. I would likely have to jump through hoops of fire to get it anyway, because unlike mortgage money, it isn’t insured with our tax dollars.

    • GMNo Gravatar 22. May, 2011 at 7:36 pm #

      However, if they were to play it safe and rent they might end up even worse off. If house prices increase, even by only 5 or 10% within 5 years, they’ll be even further behind and will have to save even more to buy a house. Plus their rent will have increased every year and will likely be double within 10 years. So they’ll be falling further and further behind.

      Yes, house prices could fall. But they’ve already fallen and look to me like they’re going back up, although at a slower pace.

      • GMNo Gravatar 22. May, 2011 at 7:41 pm #

        And what is the alternative?

        Live in a house in a neighbourhood you like, with a private yard, pride of ownership, etc. or rent – believe me I’ve rented in the past and it was not a barrel of fun. Bedbugs to worry about, redneck neighbours playing music and partying until the wee hours, locked into a lease whether you like it or not, things breaking and never getting fixed….

        Even if you don’t make a killing on the house, it’s worth it for peace of mind.

        Another thing – if interest rates are 5% higher five years from now that will mean inflation is also higher, hence the higher rates. House prices generally rise with inflation. So consider that too.

        • DancesWithLysolNo Gravatar 25. May, 2011 at 11:47 am #

          My experience with renting is much more positive. Sure, if you rent from a slum lord you’re going to have a bad experience, but for the same money you can rent a much nicer house than you can own, especially when all costs are considered. I don’t understand why you figure that renting means you live in a slum and owning means you live in a nice neighborhood, because when you do the math the opposite is true.

          For a year I lived in a very nice house in Terwillegar. The owner built his “dream house” a year earlier but couldn’t afford to sell it (at the market price meaning at a loss), and I’m pretty sure the amount I paid him per month wouldn’t have covered his expenses (mortgage, upkeep, taxes) for the house.

          On the income side of the equation it is easier for a renter to pursue career advancement that is not in the local area. If you want to take the “owning strategy” rather than the “renting strategy”, you’re either taking a hit on your career by not moving to where the money is or you are taking a big hit when you buy/sell your property on a regular basis. Mobile professionals who change jobs every 3-5 years or people who become independent contractors who out earn comparable workers who take much more stable “employee-style” positions.

      • TonyNo Gravatar 29. May, 2011 at 3:00 pm #

        albeit at a slower pace. As long as the bankers and hedge funds in America push up the world price of oil Alberta will be fine. Heck they might even get long natural gas. Fundamentals don’t mean a whole lot as long as the manipulators can squeeze out everyone else on the other side of the trade.

  7. DavidNo Gravatar 22. May, 2011 at 12:40 pm #

    If I might add, a house should not be purchased solely as an investment, but also as a good you plan to consume over time. Yes, the interest rate is likely to increase in the next couple of years (and I agree a 5% increase is not out of the picture by 2015); and yes the value of your property might decrease if the market conditions deteriorate.

    Does that mean you should see buying a house as a bad decision? If you think you can afford a house NOW that you won’t be able to afford LATER and that you plan to stay in for the next 25-30 years, well, why not buy now?

    Don’t get me wrong, I do think that house prices in Edmonton will increase, but as will the rest of the goods. As was said before, the important thing is to look at the big picture: what will be you mortgage payment AND decide if you can do with it. Don’t ask the bank to tell you what you can or cannot afford. Look at your own way of living and check if this mortgage payment fits in your budget.

    I know that, according to the bank, I could afford a more expensive house. But I also know that the resulting mortgage payment would make me sick just to think about it. So the best decision to me is not to speculate on the value of your home. Buy a house considering what you need, not what you can afford.

    • D MoneyNo Gravatar 24. May, 2011 at 6:24 pm #

      Interest rates are going nowhere. If it goes up by even 1% in the next three years it will be shocking. The US cannot afford to pay higher interest rates on her debt without defaulting. The weakness of our currencies drives commodity prices higher (including house prices), and high oil prices are stifling the world economy. The danger is that we could see 2008 all over again with another big commodity dip. If that drives investors back to currencies then we will see house prices drop as they become worth less relative to our dollar.

  8. FrankNo Gravatar 25. May, 2011 at 6:50 am #

    link to theglobeandmail.com

    The OECD considers a neutral benchmark rate for Canada to be between 4 per cent and 4.5 per cent, a highly academic target that nonetheless demonstrates how aggressive central bank Governor Mark Carney has been in fighting the financial crisis.

  9. Real Estate IndiaNo Gravatar 30. May, 2011 at 5:30 pm #

    Great analysis! Your numbers seem pretty reasonable.