Housing Affordability Reaches Worst Level in 31 Years

Housing affordability in Canada has deteriorated to its worst level in 31 years, according to RBC Economics.

The bank’s aggregate affordability measure rose 1.6 percentage points in the fourth quarter to 49.4%. In the past year alone, the deterioration reached a near-record 7.2 percentage point. A move of that scale happened just once before, in 1990.

“Rapid price escalation in the early months of 2022 has already raised the bar to impossible levels for many homebuyers,” noted RBC’s Robert Hogue, adding that increased investor participation “further stirred up the buying frenzy” and helped drive a divide between demand and supply.

“And with the Bank of Canada now in the process of hiking interest rates materially—we expect a total increase of at least 150 basis points in the coming year—ownership costs look set to spiral even higher,” he continued. “Worst-ever affordability levels could well ensue, putting buyers in a precarious spot.”

Since the fourth quarter of 2019, the average benchmark price in Canada, based on RPS data, is up 34.2%. The rise has been more extreme in select municipalities, with prices up 46% in Halifax over the same period, 40.9% in Ottawa, 34% in Toronto, 33.2% in Montreal and 29.6% in Vancouver.

As a result, higher prices and larger mortgages have made buyers more sensitive to interest rate changes compared to 10 or 15 years ago, Hogue added.

“A one percentage-point rise in rates currently would boost payments by $315 per month for a standard home in Canada (valued at $775,000), or roughly double what the increase would have been 10 years ago,” he said. “Relative to household income, the impact is two-thirds larger now.”

Mortgage Professionals Canada brings its message to Ottawa

Last week, Canada’s national mortgage broker association called on Ottawa to increase its support for first-time buyers.

Representatives from Mortgage Professionals Canada met with key political decision-makers, pressing the need for the federal government to follow through with its previously made commitments to support first-time buyers and relieve “constraints” in the housing market.

“In the lead-up to the most recent federal election, MPC was very encouraged by the clear commitments made by Canada’s major political parties related to supporting homeownership and first-time homebuyers,” said Paul Taylor, President and CEO of MPC.

The promises included changes to mortgage insurance qualification and re-evaluating the mortgage qualification stress test, he noted.

“[We met] with ministers, senators, members of Parliament and senior staff to discuss these and other policy levels that should be implemented as a means to provide support for aspiring Canadian homebuyers.”

MPC, which represents nearly 15,000 members across Canada, has also long-advocated for the introduction of 30-year amortizations for insured mortgages, which could help lower monthly payments for new buyers.

“It’s quite clear to policy-makers and the Canadian public that urgent action is needed to allow certain first-time homebuyers access to homeownership, which will help the government meet its stated priority of growing the middle class,” said Joe Pinheiro, chair of MPC. “The implementation of MPC’s recommendations can help achieve this.”

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