Turns out housing may be affordable, at least by one measure. While home prices have been climbing in Toronto and Vancouver, people that didn’t buy into the madness seem just fine. The Bank of Canada (BoC) Housing Affordability Index shows that the cost of housing across Canada is below historic norms. We were just as confused as you are right now.
The Indicator Reads Below The Average
The Housing Affordability Index is how the BoC gauges affordability of housing in Canada. It measures the ratio of disposable income that goes towards paying for shelter. Right now it sits at 0.346, which is 1.14% cheaper than the historic average. A pretty big reminder that the majority of the country isn’t playing the speculation game many Canadians have been over the past year.
Source: Bank of Canada.
Historic Declines of Housing Affordability In Canada
You’re probably thinking if this isn’t a high, what the heck is? The highest peak ever recorded in Canada was in the third quarter of 1981, when the ratio hit a whopping 0.629 – 81% higher than it sits today. The second quarter of 1990 also had a pretty steep ratio of 0.53. More recently the peak in 2007 hit 0.391, 13% higher than today’s reading. So believe it or not, the BoC’s indicator thinks it can get a lot worse.
Historic Increases of Housing Affordability In Canada
Now this isn’t even close to the most affordable Canadian housing has been. In the third quarter of 1985, the affordability index read 0.32 – 7.5% lower than today. It hit an all-time low in the first quarter of 2002, when the ratio fell to 0.265. More recently, just after the Great Recession it fell to a ratio of 0.29. Currently we’re about half way from the lowest point after the Great Recession, to the peak achieved in the fourth quarter of 2007. It was a pretty quick climb during that period, which may explain why prices feel so aggressively high.
This makes it all the more interesting that the BoC would even bring up a rate hike if their own indicator says housing is just trucking along. You know, or the BoC knows this is another bunk indicator they use, kind of like CPI.
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Photo: Daryl Mitchell.