- Bank of Canada interest rate hikes will continue to apply upward pressure on ownership costs in 2019
- RBC’s affordability measure in the third quarter reached its worst level in Canada since 1990
- Affordability at crisis levels in Vancouver and Toronto, but eroded most in Montreal during Q3
TORONTO, Dec. 21, 2018 /CNW/ – The coming year is unlikely to provide much housing affordability relief in Canada, according to the latest Housing Trends and Affordability Report issued today by RBC Economics.
The Bank of Canada is expected to hike interest rates further in 2019, which will sustain upward pressure on ownership costs. However, housing prices in several key markets should soften somewhat and household income should continue to rise, providing some offset.
RBC’s aggregate housing affordability measure increased slightly to 53.9 per cent in the third quarter of 2018, which is up 1.5 percentage points from a year ago. The housing affordability measure is calculated as a share of household income. A higher number means that buying a home is less affordable.
Higher interest rates accounted for the entire increase in RBC’s measure in the past. Add the mortgage stress test on top of this and the picture gets even more daunting for many Canadian buyers.
This year’s stress test, which required mortgage borrowers to qualify at a significantly higher interest rate than their offered rate, meant that several thousands of dollars more in income is now needed to buy a home in every market across the country.
“Buyers in Vancouver, Toronto and Victoria needed between two and three times the median household income to qualify to purchase an average home in the third quarter,” said Craig Wright, Senior Vice-President and Chief Economist, RBC. “Poor affordability has made it nearly impossible for some buyers – often young households – to enter these housing markets.”
Even more troublesome is the extent to which the qualifying income increased over the past three years. For example, the income necessary to qualify to buy an average home in Vancouver surged by $84,000 (66 per cent). Price appreciation and the stress test accounted for the bulk of this.
The considerable loss in housing affordability in Canada’s priciest cities in recent years has prompted many buyers to shift their focus to lower-priced housing options, including condos. The increased demand for condos in turn has fueled prices for these units. RBC’s affordability measure for condos in Canada increased by 3.6 percentage points in the past year, compared to only 1.2 percentage points for the single-family detached measure.
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