Bank of Canada Believes Housing Is Still Pretty Cheap…Seriously

Bank of Canada Believes Housing Is Still Pretty Cheap...Seriously

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.



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  • Lahdeedah 7 years ago

    Maybe in Port Hope. Not in the GTA. Or Vancouver.

    Spoken by an entitled Millennial married to an entitled Gen-X-er who bought a 1.2 mil house for 1.45 mil: “Yeah, well, most of our friends make a combined income of over $200K” – well, most of Canada doesn’t.

  • Lahdeedah 7 years ago

    And btw, that 1.45 mil house has radiators, original flooring, original doorknobs, and likely asbestos and lead in the walls. But they don’t care. Its north of Bloor, hooray!

  • Jacksonvillefangif 7 years ago

    Its using the MLS average resale price for all of Canada, and assuming an LTV of 95% to calculate the average mortgage payment… Its using the nationwide average resale price though, which masks the bubbles in Toronto and Vancouver. Housing Affordability in Toronto is near the early 1990s level, and in Vancouver it has well surpassed the 1990 level.

    Look at the RBC Housing Affordability Index by city… its also better because it includes property taxes, while BOC does not.

    • Lahdeedah 7 years ago

      Franken-numbers are everywhere. People cherry pick their favourite stats and publish those. Depending on what perspective they’re trying to sell. Wide lens or narrow lens, depends on the agenda.

      • Owen 7 years ago

        To me the problem is that people throw stats around without actually defining what they mean. This is the main reason that so many people think CPI and its contributions are “fixed”. Speaking of being entitled, people these days seem to think that every stat should confirm their priors, otherwise it’s “fake news”. Average rents are not the same thing as marginal new rents, Vancouver is not the only city in Canada, and having to buy a home in Langley instead of Vancouver is a growing city (and real estate bubble), not monetary inflation.

        • Lahdeedah 7 years ago

          I recently posted Garth Turner’s “Sucks” blog entry, noting the downturn in sales and prices for May…a friend chimes in “but I saw a condo sell for so much! bought $300K and sold $500K!” Well, I knew of a couple that sold their $300K condo for $600K just a year ago. Also, condos and houses are meeting in the middle – thanks to downsizing boomers unloading their mansions at peak market prices, only to snatch up the very condos that millennials are trying to get a foothold on. Without considering the broader context of a number, you miss a lot of details…

        • Avocado Lover 7 years ago

          Exactly what I was thinking. A lot of the country is ticking just fine with real estate. Calgary has been moving at the rate of a normal market. People that bought/rented before last year are likely locked into very affordable rates. When you decide to be a buyer when the number of owners in Canada exceed 60%, you’re on the top of the pile and going to pay more than the other 60% of families that already own.

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