The Canadian real estate market is entering a cyclical downturn but should avoid the cataclysmic devaluation seen in the U.S., according to a report from RBC Economics.  “Many of the factors that triggered the collapse in the United States are either absent or of much lower significance on this side of the border,” said Robert Hogue, senior economist, RBC.

The upside to the waning marketplace is that housing affordability is improving. RBC’s affordability index measures the proportion of pre-tax income needed to service the costs of owning a home.

Nationwide, the standard condominium unit remained the most affordable in the third quarter, costing 31.4% of household income to service. The standard townhouse requires 36.9% of income, while a detached bungalow needs 45.7%. A standard two-storey home remains the least affordable, gobbling up 52% of household income.

Using the bungalow as a benchmark, Vancouver remains the least affordable major city, requiring 74.8% of income. Toronto is the second least affordable, at 53.3%.  In a financial planning perspective, 74% is way too high to be sustainable over the long term.  Before buying make sure that you can afford the new housing costs without jeopardizing your lifestyle.  In the meantime, housing is becoming more affordable as prices drop and the overall market enters a healthy correction.

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