Lower rates and federal fiscal aid were not enough to make up for the feverish pace of home price growth
Home ownership in Canada has become far less affordable for the average buyer over the course of the pandemic despite the record-low rate environment, according to the nation’s Parliamentary Budget Officer.
“Household borrowing capacity increased during the pandemic due to lower interest rates and COVID-19 financial support,” said Yves Giroux, Parliamentary Budget Officer. “However, further increases in house prices far outpaced gains in borrowing capacity, resulting in wider gaps in affordability.”
This trend was years in the making, building on the feverish pace of pre-pandemic growth in residential property prices in Canada’s largest markets.
“Beginning in 2015 … house prices in several cities (Hamilton, Toronto, Ottawa, Victoria, Halifax and Vancouver) ‘de-linked’ from household borrowing capacity, rising 20%, or higher, above affordable prices,” Giroux said.
“Just prior to the pandemic, the average house price in Canada at the end of 2019 was $565,800 – an increase of 37% from January 2015. Population increases sharply outstripped housing completions, which suggests that supply was not keeping pace with demand.”
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As of the end of 2021, the national average home price was $811,700, up by 43% from December 2019 and up by 97% from January 2015.
“Our estimates indicate that in December 2021, average house prices in Hamilton, Toronto, Halifax and Ottawa were more than 50% above affordable levels for households earning average incomes,” Giroux said.
This does not bode well for these markets, especially since these trends are expected to hold for much of 2022.
“Our results suggest that household financial vulnerability is elevated in several census metropolitan areas for households that have recently purchased homes, indicating that increases in interest rates will further stretch their finances,” Giroux said.
