All major markets saw major shifts in their housing affordability measures
Affordability in the national housing market deteriorated for a third consecutive quarter in Q3 2021, according to the National Bank of Canada.
This continued a trend that started before 2020 came to a close, it said.
“Over the last 12 months, affordability has worsened the most in a decade. It would now take 46.5% of income for a representative household to service the mortgage on a representative home in Canada,” National Bank said.
Lower affordability was seen across all major markets. Vancouver saw the most significant deterioration, followed by Victoria, Toronto, Ottawa-Gatineau, Hamilton, Montreal, Calgary, Quebec, Winnipeg, and Edmonton.
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This was despite interest rates remaining unchanged in Q3 and incomes continuing to strengthen. The 4.6% quarterly and 18.6% annual increases in prices essentially negated all the affordability gains from these other market factors, National Bank said.
“Although mortgage rates were not a factor for affordability this quarter, the outlook is not particularly bright for new home buyers,” National Bank said. “Looking at data for November, mortgage interest rates have moved up nearly 25bps with the potential for further increases as monetary policy normalization intensifies. We estimate that a hypothetical 100bps increase in rates represents approximately a 12% reduction in buying power for the same payment.”
Aside from being a headwind acting on home prices in the foreseeable future, the trends coalesce into a significant challenge for hopeful homeowners, who will have to contend not just with higher monthly payments but also more demanding down payments.
“For the representative dwelling in Canada, [down payment] would now take 74 months at a 10% savings rate for the median pre-tax household income, double the 37-month average since 2000,” National Bank said.
