Bank of Canada Quietly Updates Real Estate Affordability Data To The Worst In 13 Years

Canada’s central bank quietly updated its real estate affordability index. It wasn’t good news. The Housing Affordability Index (HAI) made a big jump in Q3 2021. Maintained by the Bank of Canada (BOC), the HAI shows the share of income required to service a mortgage on a home. Low rates are no longer helping affordability, but fueling prices that outpace wages. As a result, affordability has now reached the worst level since the Great Recession.

The Bank of Canada Housing Affordability Index

The BoC Housing Affordability Index shows the share of income needed for housing costs. More specifically, the share of disposable income an average family would use. Housing costs are defined as mortgage payments and utilities. Excluded are other important costs like property taxes, used to qualify for a mortgage.

If the index falls, housing affordability is improving. A smaller share of income spent on shelter costs is generally a good thing. When the index rises, housing affordability is deteriorating. A greater share of income is needed to service a mortgage.

The model has been historically dependent on interest rates to improve the ratio. With the BoC’s overnight rate next to zero with soaring inflation, there’s little room to cut rates. This leaves them with just one move, which will either lower home prices or send costs soaring.

Canadians Need To Spend Over 37% of Income To Service A Mortgage

Canadian housing affordability has rapidly deteriorated over the past year. A home across Canada required 37.1% of disposable income in Q3 2021, up 5.2 points in the year. This is the highest ratio going all the way back to 2008. 

Canadian Housing Affordability Index (HAI)

The percent of disposable income the average Canadian household needs to spend to carry the mortgage and utilities on a home.

Source: Bank of Canada; Better Dwelling.

The big difference is 13 years ago, home prices were 58% lower, and interest rates were almost 5 points higher. Further lowering interest rates might provide a limited relief from payments. However, a much bigger share of the population is likely to suffer from high inflation.

The BoC Just Discovered Low Rates Make Housing Less Affordable — Seriously

Traditionally it was believed that low interest rates made home prices more affordable. Logically, this makes sense if you don’t think too hard about it. Cheaper money means payments should be less. However, lowering interest rates is also the mechanism the central bank uses to stimulate demand. If fast-rising home prices see an increase in demand, it usually sends prices higher.

There’s also the issue of interest rates relative to inflation. When interest rates are below the rate of inflation, the BoC is devaluing debt. This is often inflationary, with households adjusting the amount they borrow. A recent study by BoC staff confirms this, showing the past 30 years of falling rates made housing less affordable. Maybe one day someone in leadership at the BoC will actually read it. If Gen Z is lucky, it won’t take another 30 years.

The BoC is now in unchartered territory and appears uncertain about their next move. The central bank is frozen, despite the obvious move being raising interest rates. In 2017, the BoC felt the economy was running too hot and began raising interest rates. Today, they have stronger economic indicators, and feel the economy can’t handle it. 
If they raise rates and prices fail to fall, they’re just stuck with higher costs. Most likely this is why one of Canada’s oldest banks said this should have happened a year ago. Maybe next crisis.



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  • Kate 3 years ago

    They are nuts or they are thinking we are idiots

    • Rick 3 years ago

      37.1 % of who’s income. Some people are actually paying 50% or more from their incomes for rent or mortgages.

      • Charles 2 years ago

        This country is going down the tubes.

        Owning a home isn’t a luxury it should be every Canadians right. Unlike Justin Trudeau, I never received millions from my father. I worked long hours and had to save up over many years to attain the down-payment necessary to purchase a home. Taking this away from many Canadians because of wayyy overpriced homes and greedy real estate agents means we are quickly becoming a 3rd world country. It’s a no brainer. It’s a terrible time for many Canadians and after being slapped in the face by incompetent politicians and corrupt bankers we can only hope the next generation can find a way to get us out of this mess and back ontrack.

    • M.Bury 2 years ago

      Or both!

  • Millennial 3 years ago

    I wonder when millennials will step up for the real game; politics. Of course they will have to form their own political party. Current political parties are rotten.

  • Greg 3 years ago

    Bank of Canada doesn’t care about Inflation. They care about their customers: the banks and people with 2+ mortgages. Bank of Canada has lost its way.

  • Houseprice 3 years ago

    House prices for detached homes rose to almost 1.5 million and condo prices to over 800k in GTA. How would any one afford even a condo forget about single family detached. This is when we are the 2nd largest country by land. Unfortunate.

    • Doomcouver 3 years ago

      It seems no amount of systemic risk will make politicians do what’s necessary to stop an asset bubble from growing. Canada is totally screwed, probably forever at this point, regardless of what happens to our housing market.

      • Houseprice 2 years ago

        They do not think it is a bubble. People advocating to build more houses however builders’ prices are 200k over the market because they factor in appreciations and inflation in the price.

  • Mark Bayly 3 years ago

    Not sure why politicians don’t care about housing in a freezing cold country Why is Trudeau inviting in a million people a year if there is a housing shortage ? A housing crash will be good for the economy They should raise interest rates to 5 per cent and stop penalizing people for saving money

  • M.Bury 2 years ago

    If we ignore history, we are doomed to repeat it. We learned this lesson in the 1980’s, probably many times before that!

  • Jappan Singh 2 years ago

    Hello Immigrants,

    Welcome to Canada.
    We have overpriced basements ready for you and your family.
    We have burger flipping jobs ready for you.
    We have long wait times for you health care needs.

    • Bob 2 years ago

      Yeah this (except for the healthcare part – in my humble experiences, when you REALLY need it, it is there immediately).

      For the life of me I cannot figure out why any non-wealthy immigrant would want to come anywhere near Toronto or Vancouver. What a miserable lifestyle with the complete disconnect between wages and housing prices.

  • Me 2 years ago

    World governments have intentionally setup the greatest economic disaster in history. Create Massive debts, artificially create low rates to be able to pay those debts, which creates massive inflation of assets and huge risk taking = Massive crash as all the dominos fall at once.

    But this time they can’t spend their way out of it or cut rates more… and this was all created intentionally…

  • Arthur 2 years ago

    Affordability calculations need also to factor in how much income is required to save a down payment. Tomorrow will be the worst day of affordability in history for those under 50 without access to funds from the Bank of Mom & Dad. When will your experiment end Bank of Canada?

  • Diane 2 years ago

    The new cpp and ei rates made my pay decrease by $400 per month, this also decreases how much we can spend on housing

  • JCH 2 years ago

    No kidding! My excellent coworker, an immigrant from the ME, is getting his Canadian citizenship now. Which I think is awesome, because now he has the option to leave Canada whenever he wants, but return any time things become more sane here. (Me saying this, not him – he likes it here but admits the cost of living is far higher than he expected).
    I’m envious of Canadian residents with a second passport so they can get away from the insanity; exploring a 2nd (non-Cdn) one myself as I’m just about done with the stupid politicians of all parties here and their Ponzi financial system!

  • myrtle 2 years ago

    We definitely need a change of governments in our country because our leader just allowed china to obtain a Lithium deal after the selling of our gold company in 2020. We should not be selling Canadian products of mining wealth to a country that kept two and more people in captivity .

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