Q2 and Q3 trends completely reversed any improvements seen during the pandemic
Housing affordability in Canada reached its worst level in more than three decades during Q3 2021, according to RBC Economics.
By the end of the third quarter, RBC’s aggregate measure for Canadian home ownership costs went up by 2% to reach a 31-year high of 47.5% of median household income. The increase built up on the 2.7% upswing seen during Q2, which ended up “completely [reversing] improvements at the start of the pandemic,” RBC said.
This development was mainly impelled by soaring prices and higher mortgage rates – a trend that might be exacerbated by the impending hikes on the Bank of Canada’s interest rates, according to RBC senior economist Robert Hogue.
Even just a “small increase” in the five-year fixed mortgage rate already “accounted for half the 2% increase in RBC’s aggregate measure for Canada in the third quarter,” Hogue said.
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“Intense market heat” that began amid the gradual economic reopening earlier this year is another crucial factor in the current situation, Hogue said.
“Homebuyer demand is supercharged and inventories are near historical lows in virtually every market, creating intense competition between buyers and pressured prices up,” he noted.
“Developments in the past year have generally amplified pre-pandemic affordability divergences across Canada. More specifically, they’ve put Toronto and other southern Ontario markets in even less enviable affordability positions relative to the rest of the country, whereas the relative picture generally improved elsewhere, especially in Atlantic Canada and the Prairies.”
It is only by addressing the “exceptionally tight” demand and supply dynamics that Canada can even have a hope of solving the affordability crisis, Hogue said.
“The need for more supply has never been greater. This became clearly evident in the past year with bidding wars springing up in places that have rarely or never seen them before, and intensifying in places more accustomed to them,” Hogue said. “And until demand and supply return closer to balance, prices will continue to rise.”
