The trend is being impelled by elevated mortgage rates, tighter stress tests, and significant increases in residential project costs
Home affordability has deteriorated in all major Canadian cities from May to June – a trend that was mostly driven by elevated mortgage rates, tighter stress tests, and significant increases in residential project costs, according to a new analysis by Ratehub.ca.
Mortgage rates of all types increased in June, as variable rates saw a 0.25% gain in line with the Bank of Canada’s hike to the prime rate from 6.7% to 6.95%.
“Fixed mortgage rates also surged in response to fluctuations in the bond market, with five-year government bonds hitting the 3.8% range,” Ratehub said in its report. “That was felt immediately in the national real estate market, as the monthly pace of sales chilled to just 1.5%, according to the Canadian Real Estate Association.”
Even recent declines in average home prices in some markets were not sufficient to outweigh the impact of mortgage rate hikes, Ratehub said.
“Although prices have come down in certain areas in Metro Vancouver, the fact that rates remain high means that qualification is still hard for first-time #homebuyers,” said Lev Keselman of Peak Mortgage Company.https://t.co/55sudJ3asw#mortgagenews #housingmarket #ratehike
— Canadian Mortgage Professional Magazine (@CMPmagazine) May 10, 2023
“In the 10 cities we looked at, average home prices were up in six cities and down in four cities,” said James Laird, co-CEO of Ratehub.ca. “Mortgage rates increased from May to June, so much so that affordability was down in all 10 [major] cities, including the four cities where home prices were lower.”
The most serious decline in affordability was in Vancouver, with $8,850 more income required due to the region’s average home price increasing by approximately $15,000 in June. This represented the largest monthly increase of all the major Canadian cities, Ratehub said.
And while Hamilton saw the largest home price decrease on a monthly basis (down by $4,000), Ratehub said that the market’s affordability still worsened due to higher stress test and mortgage rates.
