Housing market recovery likely to negatively impact affordability: Desjardins

The impact of recent market gains is expected to last for quite a while

Housing market recovery likely to negatively impact affordability: Desjardins

The Canadian housing market has exhibited a strong resurgence since March of this year, and Desjardins is anticipating the impact of these recent gains to last for quite a while – in turn leading to a further deterioration of affordability.

“Housing demand is particularly strong in Canada, as surging population growth, a tight labour market, and amassed pandemic‑era savings provide a tailwind to activity,” according to Desjardins report authors Randall Bartlett and Hélène Bégin.

The study warned that the most in-demand regions are likely to be disproportionately affected by this trend.

“At the provincial level, sales activity has been particularly strong in British Columbia and Ontario since the beginning of 2023, and this has helped to push national prices higher,” Desjardins said. “These are also the primary destinations for international immigrants… Housing is likely to make up a larger share of the wealth of immigrant families.”

The anticipated erosion of affordability over the next few months might force younger generations of buyers to seek out other regions, “with Alberta being the primary destination,” Desjardins said. “Other Prairie provinces are also benefitting from solid economic growth and better affordability.”

And while feverish buying activity will be offset by the elevated-rate environment, “new housing supply is expected to cool somewhat going forward, providing further support to prices,” Desjardins said.

As for the long-term impact of higher rates, Desjardins said that a large share of Canadian home owners with fixed-payment variable-rate mortgages have yet to see the full impact of the added interest costs.

“This is because some have not been required to pay the interest portion of their mortgage payment that exceeds their monthly payment amount,” Desjardins said. “Instead, it has been added to their principal. This is equivalent to having extended the amortization period of their mortgages, blunting the impact of higher interest rates in the process.

“This only means that there is likely to be more housing and economic pain down the road. Ultimately, lenders will need to get paid.”