How much more do you need to earn to afford a home purchase in Canada?
The recent report by Ratehub shows that although real estate prices went down across Canada compared to a year ago, homes are now even less affordable because of higher interest rates.
According to the release, affordability deteriorated in 9 out of 10 Canadian cities: homebuyers now need an income gain of $5,650-$21,360 in order to buy a property.
The release says conditions affecting affordability will probably get even worse with the current market trends.
“As the number of new listings is restrained and some homebuyers are coming back to the market, one shouldn’t expect home affordability improvement in the nearest future,” – the report says.
The results were based on calculating the minimum annual income necessary for buying a home across major housing markets in Canada, using figures between March 2022 and March 2023. The numbers point to the influence interest rates, real estate prices and the stress test have on housing affordability.
According to the Canadian Real Estate Association (CREA), the average home price in March reached $686,371, marking a 13.7% annual drop.
“Although home prices are down in 9 out of 10 cities we surveyed, the affordability has become even worse as rates went up so much that Canadians now qualify for lower mortgage amounts than a year ago,” – the report says.
The largest hike in income necessary for buying a home was seen in Vancouver – $21,360.
Toronto market took the eighth position in the rating of affordability decrease. In spite of an average annual price decline of $216,500, buyers now need an extra $6,250 to buy a property compared to March 2022.
For its analysis, Ratehub assumed a mortgage with a 20% down payment and a 25-year amortization, annual property taxes of $4,000, and a $150 monthly heating balance.
Mortgage rates were based on an average of five-year fixed rates the big five banks offered in March 2023 and March 2022. Average housing prices were taken from CREA’s Home Price Index.
Here are the changes in income required for a home purchase:
- Vancouver: + $21,360
- Calgary: + $18,820
- Victoria: + $16,530
- Halifax: + $13,140
- Montreal: + $12,240
- Edmonton: + $8,050
- Winnipeg: + $6,920
- Toronto: + $6,250
- Ottawa: + $5,650
- Hamilton: – $4,460