Canadian Housing Affordability Hits The Worst Level Since The Last Bubble: NBF

Canadian real estate prices just turned the least affordable it has been in decades. A National Bank of Canada (NBF) analysis shows affordability worsened in Q4 2021. They found this was the case for every quarter last year, as low rates encouraged higher prices. As the overnight rate rises, housing affordability is expected to further erode temporarily. Historically, rising interest rates help to improve affordability shortly after. 

Canadian Home Buyers Need To Spend Half Their Income On A Mortgage

A typical Canadian household needs to spend nearly half its income on a mortgage to buy a home. A “representative” household needs to spend a whopping 48.6% of its income in Q4 2021 to service a mortgage. This is a 2.1 point increase from the previous quarter and a 7.8 point increase from a year before. Remember, this isn’t just pricey cities like Toronto or Vancouver. This is a national index of major cities — it’s much worse in the priciest cities.

Canada Hasn’t Been This Unaffordable Since The Last Bubble

Households need to dedicate the largest share of income in decades for mortgages. The long-term average since 2000 is 40.2% of a household’s income for a typical home. That was already high, but in Q4 2021 it reached 8.2 points higher than the average. The share of income is now the highest since the mid-1990s. For those unaware, that period was immediately after Canada’s last real estate crash. 

Higher Interest Rates Historically Improve Affordability Shortly After Adjusting

The similarities and differences between the environment are worth spending a moment on. The last time Canadians dedicated this much income to mortgage servicing was right after the 90s real estate crash. Despite home prices plummeting, affordability worsened briefly as rates increased. Shortly after, the country experienced record affordability and relatively strong productivity growth. Rising rates led to an immediate erosion of affordability for a few moments. However, generationally affordable housing became the norm and GDP improved as the capital was redirected from shelter to other areas. 

Today Canadians face a similar situation. Historically, higher non-stimulus rates slow home price growth and encourage productive capital use. This is supported by Bank of Canada (BoC) research, as well as commercial banks. While higher rates will cause brief pain, over the long-term it will create a healthier market. At least one big bank even sees the more productive use of capital as creating more inventory.



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  • Ron Bruce 2 years ago

    The fallout affects 50% of residents in most Cities known as Renters, who do not have the luxury of declaring a tax-free exception on their primary residents when they sell a home. At least in the USA, the amount claimed as an exception on your primary residents is capped. Foreign investors working through nominees in Canada know this, so the home becomes a piggy bank which makes a better return than risking investment in any business – for both the nominees and the original investor, with the promise of evading taxes and/or receiving citizenship papers.
    Nominees: Trusts, Shell Companies, Corporations, Partnerships, Banks, where not all real names of shareholders /owners are revealed. KYC Rules (know your client) are lost in the books, and possibly a second set of books have been prepared. Layering is the key method in money laundering or moving illicit money. FINTRAC is blind – willfully or too busy chasing the little guy.

  • Jappan Singh 2 years ago

    Canada should advertise this to the whole world. So all the would be immigrants know what they are signing up for.

  • RWZM 2 years ago

    That chart is quite misleading.

    Houseold incomes have about doubled since 1990, whereas house prices have more than quintupled.

    Things are much more unaffordable now–it isn’t even close. The chart is only relevant to people who have no self-control whatsoever and refuse to save, even when saving is heavily rewarded. But if most of the population behaves that way, then I guess it’s relevant.

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