Canadian real estate market shows the worst affordability level on record

According to an assistant chief economist at RBC Economics Robert Hogue, home purchase in Canada is the least affordable right now than ever, as growing interest rates are raising ownership costs to record-high levels. 

“The central bank’s rate increasing campaign since March has raised mortgage payments by hundreds of dollars,” – he noted on Thursday. 

“Combined with the sharp hike in real estate prices during the pandemic, it has made it more difficult than ever to become a homeowner.” 

Moreover, Hogue says the “full influence of higher mortgage rates is yet to be seen.” 

“In our opinion, rate increases to date, as well as future Bank of Canada hikes will intensify pressure on ownership costs during the second half of 2022.” 

RBC’s national aggregate affordability measure (percentage of household income necessary for keeping up with homeownership costs) reached a record-high level.

The report shows the average Canadian household spends 60% of their income on ownership costs, which exceeds the previous record of 57% seen in 1990. 

The least affordable markets are the ones of British Columbia and Ontario, with Quebec and Nova Scotia following. 

In Q2, the aggregate affordability rate reached record-high territory in Victoria (67.6%), Vancouver (90.2%) and Toronto (83.0%). 

Smaller markets of Ontario, e.g. Hamilton, London and Windsor, also “hit their worst affordability levels on record.” 

“The interest rate hikes since March (the policy rate rose by 3%, and another increase by 0.75% is expected this year) are increasing ownership costs in every corner of Canada,” – Hogue said. 

“The most significant influence is reported  in expensive markets that were already showing poor affordability even before the BoC started its fight against record high inflation.” 

Hogue believes the massive market downturn will lead to certain improvements of affordability in the future. 

In his opinion, home prices will keep moderating before reaching their bottom level next spring. Homeownership costs will go down as soon as the central bank stabilizes interest rates. 

“We’ll see the worst affordability at the end of 2022, although the exact period may change depending on the market,” – Hogue added. 

“Rising household income will partly support the following improvement. It will probably take years to fully offset the enormous deterioration that we’ve been seeing since 2021.”