Housing affordability deteriorates in October – report

Vancouver, Victoria, and Toronto markets log greatest drops

Housing affordability deteriorates in October – report
by Paolo Taruc

Housing affordability across Canada continued to decline during the third quarter this year, according to a recently released report by the National Bank of Canada.

The bank’s “Housing Affordability Monitor” showed that mortgage payments as a percentage of household incomes increased by two percentage points, compare to a 0.5 increase the previous quarter. A higher figure means lower affordability.

In particular, the Vancouver (+5.4 points), Victoria (+3.7 points) and Toronto (+2.5 points) markets saw the greatest drops in affordability. Likewise, both the condominium and non-condominium segments across the country saw a deterioration in affordability, while national home prices were up 2.2% from the second quarter.

The time required to accumulate the down payment on a representative home at a savings rate of 10% was 58.3 months, versus 47.9 months a year earlier.

The bank believes that the deterioration was exacerbated by the impact of higher mortgage rates resulting from the Bank of Canada’s summer rate hikes. It expects a cumulative increase of about 100 basis points for the 5-year mortgage rates, given the central bank’s intention to continue the normalization of monetary policy over the coming year.

“Historically, such a change may have had a limited impact on the housing market but this time could be different,” it said.

“Twenty years ago, a 100 basis points increase in mortgage rates would have caused a deterioration of our national affordability measure by 3.5 percentage points. Today, a similar increase has an impact 60% larger given much higher home prices.”

Related stories:
These Canadian cities have some of the most affordable homes in North America
Home ownership declining among Canadians – census