RBC Financial Performance Update

COVID-19 set Canada's housing market on record course ■ COVID-19 impacted housing markets in unsuspected ways. Home resales plunged in the spring of 2020 but then strongly rebounded to record levels in the latter stages of 2020 and early of 2021. Pent-up demand, exceptionally low interest rates, changing housing needs and high household savings proved powerful demand drivers despite elevated unemployment and renewed restrictions in the face of the second and third waves of the pandemic. ■ The strength in the housing market has been uneven. Buyers showed a strong preference for single-family homes and other low-rise categories offering more living space, putting intense pressure on little available supply. Demand for downtown condos, on the other hand, was muted throughout much of 2020 at a time when for-sale inventories have surged-a soft rental market in Canada's largest cities prompted many condo investors to divest. The downtown condo market has shown signs of a turnaround in 2021. Property value trends reflected the unevenness in the market. Single-family home prices have soared whereas downtown condo prices largely plateaued before beginning to firm up in 2021. ■ Canada's longer-term housing market fundamentals continue to be favourable despite near-term turbulence. Immigration will be a major driver of housing demand once the current in-migration pullback runs its course. ■ Lenders maintain strong underwriting discipline and require extensive documentation. - - Most mortgages held on balance sheet and conservative lending policies have led to low delinquency rates. Demand-supply conditions are generally very tight Sales-to-New Listings Ratio (1) Historic government aid temporarily lightens debt service costs Household Debt Service Costs (2) (Mortgage & non-mortgage principal & interest payments as a % of household disposable income) (Residential unit sales to new residential listings) 1.00 16 0.90 0.80 Seller's market 14 0.70 12 0.60 0.50 Balanced market 10 10 0.40 8 0.30 Buyer's market 0.20 6 0.10 0.00 4 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 (1) Canadian Real Estate Association, RBC Economics. (2) Statistics Canada, RBC Economics. PDI: Personal Disposable Income. 49 CANADIAN HOUSING MARKET RBC

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