Canada

Canadian Housing Affordability Worsens The Most In 30 Years, Prices To “Flatten”: RBC

Canada’s largest bank observed the fastest deterioration of home prices in decades. RBC economists crunched the numbers on housing affordability for Q2 2021. The bank found the share of income needed to carry ownership costs on the purchase of a home has surged. Even with negative mortgage rates (or because of?), affordably made the biggest jump in 30 years. The typical households can no longer afford a typical home across Canada.

Canadians Need To Use Over 45% of Their Income To Pay The Mortgage On A Home Purchase

Canadian real estate at the national level worsened at the fastest rate in three decades. The share of pre-tax household income to carry ownership costs reached 45.3 percent in Q2 2021. It climbed 2.8 points from the previous quarter, and is 4.1 points higher than last time. RBC data shows it is the fourth straight increase, rolling back any pandemic improvements.

Improvements during the pandemic? That might have caught your attention, since prices didn’t fall. The cost of financing fell sharply though, lowering carrying costs. Home prices didn’t drop, but it became more affordable to carry larger debts. As mentioned earlier this week, prices have now absorbed the rate discount. In fact, it absorbed the rate discount, and then some.

RBC expects affordability to worsen in the near term, but sees home price growth flattening next year. They’ve observed a slow down in many markets now, but prices rising slower is still rising. By next year though, affordability might be so stretched, it can no longer be pushed without additional stimulus. 

Canadian Housing Affordability

The share of income a median household would need to spend on homeownership cost for a typical home purchase in Q2 2021.

Source: RBC; Better Dwelling.

A Mortgage In Toronto Now Requires 59% of The Typical Household’s Income

Toronto real estate remains the second least affordable market, and it’s getting worse. The median household required 59.1 percent of income to buy and carry a typical mortgage in Q2 2021. This is up 2.7 points from the previous quarter, and up 4.7 points since last year. Even with home price growth lower than the national average, affordability worsened faster.

Household incomes and home prices in Toronto are now greatly disconnected. The average share of income to carry a mortgage is 48.5 percent since 1985. Not exactly affordable, but 10 points above this level is bordering on the absurd. This is also gross income, so there are other factors to consider such as tax rates, and other carrying costs. Not to mention the down payment issue, which is a whole other article for another day.

Vancouver Real Estate Is Still The Least Affordable In The Country

Greater Vancouver real estate remains the king of unaffordable housing in Canada. The share of income required reached 63.5 percent in Q2 2021. This is an increase of 3.2 points from the previous quarter, and it’s 4.9 points higher than last year. Nearly two-thirds of income to purchase a typical home — not even a detached one.

Historically Vancouver has always been expensive for local incomes, just not this expensive. Since 1985 the average was 57.8 percent, which still excludes most households. Yet somehow the City managed to absorb a massive mortgage rate cut, and then some to consume a larger share. The gap between the rich and the “middle” of the city is the widest in Canada.

Having affordability deteriorate as mortgage rates are cut is a risky game. If rates rise, and high inflation may force it, they’re most likely to bring down prices. However, if they rise and don’t bring down prices, affordability becomes even worse. This leads to a risky scenario where rates can’t be cut, or people can’t afford housing. Death by inflation or housing affordability, banker’s choice. 

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18 Comments

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  • Smaug 2 weeks ago

    I think you meant to put a link in the (because of?) to the inflation article from the previous day.

  • Dan 2 weeks ago

    I’m a geriatric millennial. Everyone in my circle aged within 5 years of me owns a house. HHI over 150k, in fact the poorest family makes around 160k, i have others in the 300-400k range. People are making $ out the yin yang. Whether it is amazon/ebay arbitrage, content, crypto, stock, etc. Then we have the boomer wealth transfer which is in full effect and will continue for 10-20 years. I would be less worried about RE and more about the broader economy. Major asset managers aren’t piling into RE because it is going to ‘correct’ 50%! Prices will maybe dip 5% and then go relatively flat, well mover with inflation, which is how RE used to work. Times ate different but the same. Looking back at the 70s or 80s as a guide for 2020+ is a little naive.

    • BCGuy 1 week ago

      I’m also a geriatric millennial and 90 percent of the people I know own a house. And only 10 percent of them can afford it without an a basement suite and ultra low interest rates. 25 percent of those that own a house have a job directly connected to the Real Estate bubble that completely disappears when it pops(they also “own” vehicles and other assets on credit)

      Oh…also at least 51 percent of Canadians are living paycheck to paycheck. We’re literally standing on one foot on the edge of a cliff with our eyes closed.

      • David Chan 7 days ago

        Also a geriatric millennial homeowner in Vancouver. I’m not delusional about the fact that fewer than 50% of my demographic owns, when it was over 60% of the previous generation that owned at this point.

    • D 1 week ago

      95% of Canadian households make less than $150k a year. You’re out of touch.

  • Kolf 2 weeks ago

    With so much extra money flowing around while actual productive capacity being decimated world wide. This extra liquidity will surely flow into assets such as real estate, stocks and natural resources. Prices, not just real estate will keep going up. Thats why lots of people who understands economics converted their cash last year into real estate or other investment.

  • Doomcouver 2 weeks ago

    Prices are going to get “flattened” alright. Just like how you get flattened if you get hit by a semi-truck. Massive cracks in the global housing bubble have already formed in China, the contagion risk to global housing investment sentiment is extremely high right now, and we could be mere weeks away from the start of the long-fabled rush to the exits. Get your popcorn ready.

  • Don Jason 1 week ago

    70% of Metro Vancouver is “Green space”. 60% of GTA is Greenbelt. There is no space to build new homes to match demand. That’s why this extreme price increase.

  • Ian 1 week ago

    Until either the provincial or federal government gets serious about housing supply the municipalities are going to continue constrain supply with insane zoning practices and archaic property tax schemes.

    • Jacob 1 week ago

      And lumber, and steel? Concrete workers, and corn? All of these costs are rising because of zoning?

      Shocked at how few people understand high inflation is a tax, and it’s working this way by design.

  • JT 1 week ago

    Am I the only person who finds it odd that our prime minister says affordable daycare means lowering the cost to $10 a day. Affordable housing meanwhile, is not lowering the cost but looking at letting you pay for it over 40 years+? Sounds a lot like affordablilty claims coming from a car salesman pushing 84 month paymnet plans.

  • anonymous 1 week ago

    This is modern enslavement. How the latter generations are in indebted to life by the older generation.
    Most boomers bought houses when it was worth less than $100k. Now they are claiming it is worth $1 000 000. You know when you know your days are counted and are trying to squeeze and ml of juice out of the lemon.

  • anonymous 1 week ago

    And in fact there is an extremely simple way to fix our broken housing market. Look at how it works in the US. Stop lending money for free. And raise property taxes.

    This will would make all these boomers and speculators shut up about their now worth $1 million house. I bet they would stay much more aligned with the actual worth of their house. Then the question becomes what’s the red line. Extremely simple. A bungalow made in the 50-60s is worth $200k-$300k(max). Not +$1.5 million. Such fantasy we live in today. As I said, it’s the old timers game profiting from insane demand vs low supply creating by immigration, investors, etc.
    They should also tax and regulate people and businesses who get exponential mortgages(so make money by flipping houses). So say they get more than x mortgage within x amount of time. They should set a tax for these people(they want to profit from the real estate market so they should be expected to contribute too and not just take). They should also make real estate taxable in Canada … Not a free roofless money making vehicle. It’s like imagine if there would be no speed limits on our highways. Those who can would hit +300km/h commonly and not give a shit. This can’t happen.

    • BCGuy 1 week ago

      A simple solution then you’re overly complicated and wasteful tax system is just to continually raise the interest rate until inflation is controlled. Whether that means increasing it to 2, 5, or 20 percent…

      But that means a national economic disaster the likes of which we haven’t seen since the depression so ….going to happen later than sooner.

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