Falling home prices, rising incomes, and lower rates contribute to improvement
Housing affordability in Canada saw a widespread boost across the country's largest markets during the first quarter of 2024, marking the greatest quarterly improvement since 2019, according to National Bank of Canada.
The bank's latest Housing Affordability Monitor report showed that the mortgage payment as a percentage of income for the median home price fell by 3.1 percentage points to 58.9% nationwide in Q1 2024. This came after affordability had deteriorated to its worst levels since the 1980s by the end of 2023.
National Bank economists Kyle Dahms and Alexandra Ducharme attributed the boost to three key factors: softening home prices, rising median incomes, and falling mortgage rates.
The improvement was most pronounced in Canada's three least affordable markets of Toronto, Vancouver, and Victoria, thanks to steeper drops in home prices.
In Toronto, mortgage payments as a percentage of income plunged 5.7 percentage points to 84.4% for non-condo properties and declined 2.7 points to 50.2% for condos. Vancouver saw even larger drops of 8.9 points for non-condo homes and 3.8 points for condos.
"It worked out for a few people who were ready to pull the trigger," Pritesh Parekh, a Toronto-based realtor with Century 21, told Global News, referring to buyers taking advantage of relatively more affordable prices in Q1.
While the Bank of Canada has held its policy rate steady at 5.0 percent so far this year, the report noted that market expectations for future rate cuts helped push down the benchmark five-year mortgage rate by 32 basis points in the first quarter.
However, the economists cautioned that despite the notable improvement, "the mortgage cost as a proportion of income is 'hardly an accessible level' where it stands." In Vancouver, the median income needed to cover payments on the median non-condo property remains above 100%.
Looking ahead, the report shows little optimism for continued affordability gains for the rest of 2024. While rate cut expectations could lead to "somewhat cheaper financing costs" for new homebuyers in the second half of the year, robust population growth is expected to keep home prices "resilient."
Parekh echoed these sentiments, saying the first anticipated rate cut from the Bank of Canada would likely have a limited impact on overall affordability for most buyers, though it could help those "right on the cusp" of being able to purchase a home.
“If it is something like 25 basis points, it’s not large enough to change the conversation on affordability,” Parekh said. “I think it would probably take a little bit more on the downside to help.”
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