Housing affordability worsened in every single market tracked, with some reaching the worst levels of all time, a report from one of Canada’s top banks finds..
The revelation from RBC’s latest analysis on housing affordability was that the median Canadian household now has to spend an unprecedented 63.5% of its income to afford the mortgage.
A report from Statistics Canada last Wednesday marked decline in satisfaction and hopefulness among young Canadians, with approximately a third of youth reconsidering home purchases or moving to a new rental in 2022, thanks to daunting financial pressures.
In Vancouver, a city the report says is “in full-blown crisis,” an average household has to spend 106.3% of its income to cover home ownership costs.
Other cities, such as Victoria and Toronto, saw similar deterioration, with households having to allot 80.2% and 84.8% of their incomes towards mortgages, respectively.
Housing affordability in Ottawa, Montreal, and Halifax is at or near all-time worst levels. Ottawa’s aggregate measure reached an all-time high of 49.9%. Montreal also reached a record-high needed income for housing costs, at 53.3%. Halifax, whose long-run average aggregate measure was 31.9%, jumped to 45.3% of income required to spend on housing costs.
The 63.5% of median income needed to be spent towards owning a home across Canada rose from 61.8% in the third quarter. RBC’s report, authored by Robert Hogue, claimed that high interest rates helped propel this increase, offsetting the nationwide small price relief.
Despite many jurisdictions’ housing affordability being at an all-time low, the RBC expects rate cuts to start mid-year and act as a turning point for the country’s housing affordability.
“We expect lower borrowing costs will restore some of the massive losses during the pandemic. Any improvement over the coming year, though, is poised to be modest and leave budget-constrained buyers wanting,” read the report.
Statistics Canada reported that Canada has the highest household debt to disposable income ratio in the G7, at 185%, while the average for all G7 countries was 125%.
The average price of a home peaked at $838,690 in June 2022. At the time, the purchasing power of the average household was $598,200, a difference of $240,490 between cost and purchasing power. As of December 2023, the average price of a home was $796,271, while a household’s purchasing power was $496,700, a difference of $299,571 between cost and purchasing power.
While the cost of a home has decreased by $42,429, purchasing power has decreased by $101,900, nearly $60,000 more.
Much of the decrease in buying power has been due to increased interest rates when households have had to renew their mortgages.
“High rates have seriously crimped house hunters’ purchasing budget,” said Hogue.
The bank estimates that the budget for a household with a median income of $85,400 has decreased by 22% since the first quarter of 2022. Home prices have only decreased by 1.8% during that same interval.
“The ability of many Canadians to get into the housing market has greatly diminished,” read the report.
Despite the all-time worst housing affordability, RBC remains optimistic for the near future. The percentage of household income needed to spend on a home across Canada, reaching 63.5%, will decrease, according to the bank’s projections.
Data are not yet available, but the bank projects ownership costs to drop to 60% of household income in January 2024, when data becomes available, further lowering to 56.4% in January 2025.
“Meaningfully restoring affordability will likely take years in many of Canada’s large markets. In this context, we expect the housing market’s recovery to be slow at first, before gaining momentum as interest rate cuts accumulate,” said Hogue.