Housing affordability falls to a 31-year record low level in Canada

The recent report by RBC Economics shows that housing affordability in Canada was at its worst level in 31 years in the third quarter of this year.

RBC Economist Robert Hogue says aggregate home ownership costs were up to 47.5% of a median household income. It became a sequential rise by 2% and an annual increase by 6%.

When measuring ownership costs, RBC studies mortgage payments, property taxes and utilities.

“The market has never been in such a need of more supply. It became obvious in the previous year with bidding wars appearing in areas not used to such things and intensifying in regions with an already strong demand. Until we don’t get a balanced demand and supply position, home prices will keep growing,” – Hogue noted in the report.

Vancouver showed the worst affordability level with ownership costs taking 64.3% of a median household income in Q3 – it’s 0.9% higher than during the second quarter.

At the same time, Toronto saw the numbers going up by 2.7% to 61.9%, marking the strongest deterioration of all markets tracked by RBC.

According to Hogue, the outlook for homebuyers “is grim,” especially as the central bank plans to start raising interest rates in 2022. The Bank of Canada made it quite clear the first rate hike may happen in the “middle quarters” of the next year. Hogue believes RBC’s national gauge of affordability may go up by another 2-3.5% because of a rate increase.

“A potentially significant deterioration in affordability may push many buyers out of the market or at least out of a housing category. That’s the way the market’s self-correcting scenario may work. As long as we’re facing lack of supply, most of rebalancing adjustments will fall on the demand side.”