Higher income requirements offset drop in mortgage rates
Canadian home affordability worsened across most major markets in April despite a slight decline in mortgage rates, according to a new analysis by Ratehub.ca.
Rising home prices outweighed the effect of lower rates, making it tougher to qualify for a mortgage in 10 out of 13 major cities tracked.
“The two key variables that impact home affordability, home values and interest rates, moved in opposite directions,” Ratehub CEO James Laird said in the report. “Interest rates are down, and home values are up in 12 out of 13 cities we looked at. The increase in home values was enough such that affordability worsened in 10 of 13 cities despite the rate drop.”
Montreal was the lone bright spot, with home affordability improving slightly as its average home price dipped $1,000 from March to $530,300. A buyer there could qualify with an income of $110,380.
Vancouver and Victoria ranked second and third for improved affordability, though prices ticked higher, as “the decrease in mortgage rates was enough to still produce an improvement,” according to Laird.
Meanwhile, Halifax saw affordability deteriorate the most, with $2,200 in additional income now required, compared to March, due to surging home prices in the maritime city.
The mixed affordability picture comes as the spring homebuying season kicks off in earnest. While April saw home sales dip 1.7% month-over-month nationally, new listings jumped 2.8%.
“After a long hibernation, the spring market is now officially underway,” said James Mabey, chair of the Canadian Real Estate Association’s Board. “Mortgage rates are still high, and it remains difficult for many people to break into the market, but, for those who can, it’s the first spring market in some time where they can shop around, take their time and exercise some bargaining power. Given how much demand is out there, it’s hard to say how long it will last.”
Read next: Canada can cut rates – even if the US doesn’t, says TD Bank
It’s widely expected affordability will improve once the Bank of Canada starts cutting interest rates, potentially as soon as June.
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