Housing affordability at a four-decade low, suggests new report

The situation is not likely to improve quickly taking current market trends into account, according to National Bank

Housing affordability at a four-decade low, suggests new report

Housing affordability is currently at one of its worst levels since the 1980s, according to National Bank of Canada.

Taking current market trends into account, the situation is not likely to improve any time soon, said NBC analysts Stéfane Marion and Daren King.

“Given the unprecedented population growth that continues to far exceed the capacity to build housing, we believe that affordability challenges will persist in the short and medium term, even if mortgage rates decline over the next year,” NBC said.

The ongoing crisis is years in the making, and it will take in-depth introspection to determine “whether some of our policies and standards in the mortgage industry could be improved to limit the deterioration in access to housing,” NBC added.

“Since June 2012, it has not been possible to insure a mortgage of more than $1 million, forcing buyers to put at least 20% down,” NBC said. “Since December 2015, the minimum down payment for the portion of an insured loan over $500,000 has increased from 5% to 10%.”

Average home prices nationwide have also doubled since 2012, and headline inflation exceeded 30% during the same period.

However, “the mandated limits on mortgage insurance have never been revised upward,” NBC said. “Given the current impasse, we believe that mortgage insurance terms should at least be indexed to inflation in order to limit the deterioration of housing affordability in the country.”

Home prices will be largely influenced by interest rates

John Pasalis, president of the Toronto-based Realosophy Realty, recently said that home prices over the next year will be largely steered by the Bank of Canada’s trendsetting interest rate.

“Interest rates are going to be the main factor driving the trends in house prices,” Pasalis told the Financial Post. “The big driver right now is interest rates and there’s not much the feds can do to get around that.”

Long-term factors “are not going to help the housing market in the short term,” he stressed. “The only thing that matters right now are interest rates, quite frankly, and the impact that’s having on the number of people who are buying homes, which is unbelievably low, and the number of people who are forced to sell because they’re over-leveraged.”