October 28, 2009

October 28, 2009

Affordability declines in Canada in Q3 Price increases are to blame The Desjardins Affordability Index (DAI) deteriorated sharply Canada-wide in the third quarter of 2009. After making a short incursion into affordable territory, the DAI has dipped below its historic average, returning to where it was when the recession began. The improved economic outlook and low mortgage rates have fuelled a strong comeback by buyers. The number of sales has taken back all of the ground lost during the recession, driving prices higher in Q3. Average property prices even hit a new peak of $328,762, up 7.1% from the previous quarter. The drawback of this surge is that it makes the housing market less affordable, which could cool buyers’ enthusiasm.

Canada

160

150

150 126.5

140 130

130 120 T rend

110

DAI

110

100

100

90

90 1991

1994

1997

2000

2003

2006

2009

Source: Desjardins, Economic Studies

After seeing affordability improve in Québec over the six previous quarters, the province recorded a decline in the third quarter. The DAI is now at 146.0 points, indicating that Québec households’ average disposable income is about 46.0% higher than the income mortgage lenders require to finance the purchase of an average priced residence. The resale market had been in balance during the recession, but is now undergoing a shortage again. This situation, which puts upside pressure on prices, contributed to the DAI’s deterioration.

Ontario

Québec Index

Index 160

160

150

150 130.2

140

Index

Index 200

200

190

190

180

180

140 170

170 130

130

Average

120

120

110

110 T rend

140

Average

120

1988

The nascent economic recovery in Ontario has driven up demand for homes. The average home price hit an unmatched peak in the third quarter ($324,873) thanks to sharp growth in Toronto. Affordability thus deteriorated in the province, going to its historic average (130.6 points). The crisis has still left its mark; Ontarians’ average disposable income has fallen substantially, going from $79,299 a year ago to $77,601 in the third quarter of 2009.

Index

Index 160

160

146.0 Average

150

100

150 140

140 130

D AI

160

T rend

130

DAI

100

90

90

80

80 1988

1991

1994

1997

2000

2003

2006

2009

Source: Desjardins, Economic Studies

120

120

110

110 100

100 1988

1991

1994

1997

2000

2003

2006

2009

Source: Desjardins, Economic Studies

François Dupuis Vice-President and Chief Economist

Yves St-Maurice Director and Deputy Chief Economist

Hélène Bégin Senior Economist

Jean-Michel Goulet Economist

418-835-2450 or 1 866 835-8444, ext. 2450 E-mail: [email protected]

NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively. IMPORTANT : This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on factors such as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright © 2009, Desjardins Group. All rights reserved.

Desjardins Affordability Index

October 28, 2009

www.desjardins.com/economics

AFFORDABILITY IN CENSUS METROPOLITAN AREAS (CMA) Vancouver is by the far the country’s most expensive market, with an average home price of $603,165 in the third quarter. From the second to third quarters, the market saw prices explode, rising an average of $92,499. In the Olympic year, with British Columbia’s jobless rate down from 8.1% in June to 7.4% in September, we cannot expect affordability to improve over the medium term. While the average home price was rising almost throughout the country in the third quarter, the Calgary CMA saw prices decline by a quarterly 2.0%. The Desjardins Affordability Index (DAI) thus improved in Q3 in Calgary, which joins the affordable market group for the first time since 2005. QUÉBEC

In the third quarter, price growth caused affordability to deteriorate in all Québec CMAs, except for Saguenay. This was the only market to see the average home price go down (-6.8%) compared with increases ranging from 0.6% to 3.7% in the five other CMAs. The biggest decline in affordability occurred in Québec (6.3 points), where average disposable income fell by 1.0% in the third quarter ($64,042). Sherbrooke and Trois-Rivières also saw the DAI plunge, with respective changes of 4.2 points and 5.3 points. In Montréal and Ottawa–Gatineau, affordability declined more moderately (2.8 points and 2.3 points). Montréal’s more modest change is due to a quarterly increase in prices (3.3%) that was somewhat offset by a 1.0% increase in average disposable income ($63,459).

ONTARIO

Although the DAI fell substantially in most of the CMAs, they were all affordable in the third quarter of 2009. Like Québec, just one CMA—Kitchener—saw affordability improve, once more becoming an affordable market after spending a little time in the «to watch closely» zone during the second quarter. Affordability deteriorated the most in Greater Sudbury, with the DAI down by a quarterly 10.5 points due to a 5.1% increase in the average home price. Then come Hamilton and Windsor, with respective DAI declines of 6.9 points and 4.7 points. Windsor’s drop in affordability is due to a quarterly 2.1% decline by average disposable income ($63,938). In Windsor, average disposable income is down by 4.7% in the last year, showing that the auto sector crisis has dealt a severe blow. In Kingston, Oshawa, Toronto and London, affordability is down from 2.2 points to 3.4 points in the third quarter. Toronto’s 3.4-point pullback by the DAI results from two opposing forces: a quarterly 5.2% increase in the average home price ($402,762) and 2.0% rise by average disposable income ($89,561). The St. Catharines–Niagara and Thunder Bay markets saw the smallest declines by the DAI, with respective decreases of 1.3 and 0.7 points. The quarterly deterioration of 1.9% ($140,229) in the average home price in Thunder Bay allowed this index to remain steady despite a 1.6% decline in average disposable income ($61,327). Hélène Bégin Senior Economist Jean-Michel Goulet Economist Ontario Census Census Metropolitan Areas (CMA)

Québec Census Metropolitan Areas (CMA) (CMA) Index 240

Index 240

Index 200

Index 200

230

Q 3 2009

230

190

220 210

Historical average

220 210

180

200 190

200 190

160

160

150

150

180

180

140

140

170

170

130

130

160 150

160 150

120

120

110

110

140

140

100

100

130 120

130 120

110

110

Source: Desjardins, Economic Studies

Source: Desjardins, Economic Studies

2

y

te r re a

Th

un

Su

de

db

rB

ur

ay

ra

n

ga

n

sN

ha

O ttawaG atineau

G

M ontréal

at

T roisRivières

.C

Sherbrooke

St

Q uébec

ri

100 Saguenay

ia

do

or Lo

in

ds

ne W

he it c

am H

r

ilt on

170

K

nt o

a

ro

w To

sh a O

in

gs

to n

170

K

180

Historical average

ne

100

190

Q 3 2009

Desjardins Affordability Index

October 28, 2009

www.desjardins.com/economics

Desjardins Affordability Index Chan ge CANADA QUÉBEC ONT ARIO M e tro p olitan Are as Saguenay Q uébec Sherbrooke T rois-Rivières Montréal O ttawa-G atineau Kingston O shawa T oronto Hamilton Kitchener Windsor London St.Catharines-Niagara T hunder Bay G reater Sudbury CALG ARY VANCO UVER

Level gap

2009Q3

2009Q2

High

Low

Average

-7.6 -3.2 -5.2

126.5 146.0 130.2

134.1 149.2 135.5

158.1 191.6 155.9

93.6 112.4 86.5

129.0 154.1 130.6

12.3 -6.3 -4.2 -5.3 -2.8 -2.3 -2.9 -2.2 -3.4 -6.9 8.0 -4.7 -2.2 -1.3 -0.7 -10.5 3.9 -14.8

201.4 166.5 132.7 188.1 131.3 157.2 143.0 146.7 125.8 138.0 151.7 186.5 152.7 144.3 191.4 171.6 172.6 80.0

189.1 172.8 136.9 193.4 134.1 159.5 145.8 148.9 129.1 144.9 143.7 191.2 154.9 145.5 192.1 182.2 168.6 94.8

255.9 223.0 208.8 238.1 180.6 185.2 174.3 179.0 142.4 164.8 180.9 200.0 177.2 167.9 217.1 218.1 210.3 111.5

159.3 131.2 112.1 134.3 99.4 110.1 94.4 83.0 72.3 85.7 90.9 116.5 97.3 93.4 125.7 120.5 113.1 62.5

209.0 180.6 161.1 191.9 138.8 156.7 142.1 142.6 118.6 137.5 146.2 172.6 144.4 140.6 177.3 169.0 168.9 87.0

Sourc es : Statis tic s Canada, Conf erenc e Board of Canada, Canadian Real Es tate A s s oc iation and Des jardins , Economic Studies

The Desjardins Affordability Index is calculated by determining the ratio between the average household disposable income and the income needed to obtain a mortgage on an average-priced home (qualifying income). Qualifying income is calculated based on the cost of owning a home (mortgage payments, property taxes and utility costs). An information document on the DAI is available on our Web site: http://www.desjardins.com/economics Gap between the the DAI DAI and and its historical historical average average

Gap Gap between the DAI DAI and its historical historical average

O ttawa-G atineau

Vancouver

Hamilton Kingston

Q uébec

G reater Sudbury

Affordable (higher than the historical average)

Calgary

To watch closely (less than 10% below the historical average)

M ontréal

St.Catharines-Niagara Oshawa

Saguenay

Kitchener London

T rois-Rivières

T oronto

Not very affordable (10% and more below the historical average) T hunder Bay

Sherbrooke

Windsor In %

0

1

2

3

4

5

6

7

8

9

In %

-18

-16

-14

Vancouver Index

Index

115

105

95

95

-4

-2

0

Index

Index

215 T rend

85

85

75

75

65

65

55

55 1994

1997

2000

2003

2006

2009

205

DAI

195

195

185

185 175

175 Average

165 Average

Source: Desjardins, Economic Studies

-6

215 205

DAI

105

1991

-8

Calgary

115

1988

-10

Source: Desjardins, Economic Studies

Source: Desjardins, Economic Studies

T ren d

-12

165

155

155

145

145

135

135

125

125

115

115 105

105 1988

1991

1994

1997

2000

2003

Source: Desjardins, Economic Studies

3

2006

2009

Desjardins Affordability Index

October 28, 2009

Saguenay

www.desjardins.com/economics Québec

Index

Index

Index

Index 230

255

230

255 T rend

DAI

220

245

T ren d

220

DAI

245

235

235

225

225

215

215 Average

205

205

210

210

200

200

190

190

180

180

Average

195

195

170

170

185

185

160

160

175

175

150

150

165

165

140

140

155

155

130

1988

1991

1994

1997

2000

2003

2006

2009

130 1988

Source: Desjardins, Economic Studies

1991

1994

1997

2000

2003

2006

2009

Source: Desjardins, Economic Studies

Sherbrooke

Trois-Rivières Index

Index

Index

Index

240

220

240

210

230

200

200

220

220

190

190

210

210

180

180

170

170

220 210

T ren d

DAI

160

T ren d

230

DAI

200

200 190

190

Average

160

Average

180

180

170

170

130

160

160

120

120

150

150

110

110

140

100

130

150

150

140

140

130

100 1988

1991

1994

1997

2000

2003

2006

140 130 1988

2009

Source: Desjardins, Economic Studies

1991

1994

2003

2006

2009

Ottawa-Gatineau Index

Index 188 T ren d

2000

Source: Desjardins, Economic Studies

Montréal

178

1997

DAI

188

178

178

168

168

158

158

148

148

Index

Index

188

188 T ren d

DAI

178

168

168

158

138

158 Average

148

148

138

138

128

128 118

138

Average

128

128

118

118

108

108

118

98

98

108

1988

1991

1994

1997

2000

2003

2006

108 1988

2009

Source: Desjardins, Economic Studies

1991

1994

2003

2006

2009

Oshawa Index

Index 180 170

2000

Source: Desjardins, Economic Studies

Kingston

T ren d

1997

DAI

Index

Index

180

180

180

170

170

170

160

160

160

160

150

150

150

150 140

140

140

Average

140

Average

130

130

130

130

120

120

110

T ren d

DAI

120

120

110

110

110

100

100

100

100

90

90

90

90

80

1988

1991

1994

1997

2000

2003

2006

2009

80 1988

1991

1994

Source: Desjardins, Economic Studies

Source: Desjardins, Economic Studies

4

1997

2000

2003

2006

2009

Desjardins Affordability Index

October 28, 2009

www.desjardins.com/economics

Toronto

Hamilton Index

Index 150 T ren d

140

DAI

130

170

140

160

130

Index

Index

150

170 T rend

DAI

160

150

150

140 120

140

120 Average

110

Average

130

130

120

120

110

110

100

100 90

110

100

100

90

90

80

80

90

70

70

80

1988

1991

1994

1997

2000

2003

2006

2009

80 1988

Source: Desjardins, Economic Studies

1991

1994

1997

2000

2003

2006

2009

Source: Desjardins, Economic Studies

Kitchener

Windsor Index

Index

Index

Index

190

210

180

200

170

170

190

160

160

180

150

150

170

140

160

160

130

130

150

150

120

120

140

140

110

110

130

130

100

100

120

120

90

90

110

190 180

T ren d

DAI

Average

140

1988

1991

1994

1997

2000

2003

2006

2009

210 T rend

190 180

110 1991

1994

2000

2003

2006

2009

St.Catharines-Niagara Index

Index 180 T ren d

1997

Source: Desjardins, Economic Studies

London

170

170

Average

1988

Source: Desjardins, Economic Studies

200

DAI

DIA

Index

Index

180

170

170

170

160

160

150

150

160

160

150

150 140 Average

140

140

Average

140 130

130

130

130

120

120

120

100

110

100

100

100

90

90

90

1991

1994

1997

2000

2003

2006

2009

90 1988

Source: Desjardins, Economic Studies

120

D AI

110

110

1988

T rend

110

1991

1994

1997

2000

2003

2006

2009

Source: Desjardins, Economic Studies

Thunder Bay

Greater Sudbury Index

Index

Index

Index

230

220

220

210

210

210

200

200

200

200

190

190

190

190

180

180

180

180

170

170

160

160

160

160

150

150

150

150

140

140

140

140

130

130

130

130

120

120

110

230 220

T ren d

DAI

Average

170

120 1988

1991

1994

Source: Desjardins, Economic Studies

1997

2000

2003

2006

2009

220 T ren d

210

DAI

170

Average

120 110 1988

1991

1994

1997

2000

2003

Source: Desjardins, Economic Studies

5

2006

2009