The residential market is relatively unaffordable in most Québec and Ontario cities
Lévis, November 8, 2006 – Future homeowners now have a new tool, the Desjardins Affordability Index (DAI), to help them better assess housing market risks and anticipate large fluctuations in home prices. Developed by the economists at Desjardins Group, Canada’s largest integrated financial cooperative, the DAI evaluates household ability to purchase a home and assume the related costs.
“An affordability index allows you to determine whether the level of home prices is sustainable by comparing the costs of owning a home with household income. This is an important issue in the current economic context,” explained Desjardins economist Mathieu D’Anjou. “The Canadian economy has been showing signs of slowing since the beginning of the year and it would have a tough time dealing with a sharp downturn in the housing market. This is all the more true for Québec and Ontario, where economic growth has been particularly weak of late.”
The DAI value is calculated by taking the ratio of average household disposable income to income required for a financial institution to agree to finance the purchase of an average-priced home (qualifying income). For example, an increase in the DAI means that the housing market is becoming more affordable.
In general, Desjardins’ economists have noted that the DAI fell slightly in the third quarter of 2006 and that while some markets are still affordable, especially Thunder Bay and Windsor (Ontario), affordability has dropped in most metropolitan areas of Québec and Ontario. In these provinces, the markets of Montréal, Sherbrooke, Saguenay, St. Catharines-Niagara and Ottawa-Gatineau should be watched because the DAI in these areas is well below its historical average. However, even in Montréal, where the DAI has fallen the most, the situation is far less worrisome than in western Canada, particularly in Calgary, where the overheated market drove the DAI down to a new historic low in the third quarter.
“Although the drop in affordability was much less pronounced in the last quarter, the trend is still negative and the index is now significantly below its historical average. This means that the housing market is no longer affordable and cannot support any further sharp hikes. Fortunately, affordability remains well above the levels reached in the early ’90s, that is, before the last price correction,” added Mr. D’Anjou.
The Desjardins Affordability Index is calculated using data from the most reputable sources in Canada. Its methodology and form are based on the Housing Affordability Index produced by the U.S. National Association of Realtors. It is calculated for Canada, Québec and Ontario and is also available for all census metropolitan areas of both provinces as well as for the cities of Calgary and Vancouver.
About Desjardins Group
Desjardins Group is the largest integrated cooperative financial group in Canada, with overall assets of more than $118 billion. It comprises a network of caisses, credit unions and business centres in Québec and Ontario, and some twenty subsidiary companies in life and general insurance, securities brokerage, venture capital and asset management, many of which are active across the country. Drawing on the expertise of its 40,000 employees and the commitment of 7,600 elected officers, Desjardins offers its 5.5 million individual and corporate members and clients a full range of financial products and services. Its physical distribution network is complemented by leading-edge virtual access methods. www.desjardins.com