Canadian real estate has never been less affordable, according to Canada’s largest bank. RBC warns housing affordability eroded to its worst level on record in Q2 2022, with households now requiring a record share of income. Despite falling home prices, affordability is still eroding due to rising interest rates. However, the bank sees home prices falling further to adjust to higher rates, and affordability to improve as early as next year.
Canadian Real Estate Has Never Been Less Affordable
Canadian housing affordability has reached the worst point it’s ever been. A household now requires 60% of its income just to service a mortgage in Q2 2022. It surpasses the previous record of 57% hit in the 90s, and that’s just at the national level. The bank warned it’s even worse in Canada’s largest cities.
A record share of income is required for a typical home in Toronto (83%), Vancouver (90.2%), and Victoria (67.6%). Ottawa (48.5%), and Halifax (41.3%) are also unusually high, they just seem small in contrast to the big three markets.
The trend is universal, right across the country “While the situation isn’t as dire in other regions of the country—in fact, many markets in Alberta and Saskatchewan, and some in Atlantic Canada still look reasonably affordable—the rapidly deteriorating trend is universal. A rise in RBC’s measure represents a loss of affordability.” said Robert Hogue, RBC’s deputy chief economist.
Falling Home Prices Will Restore Affordability
Periods of such extreme unaffordability don’t typically last for long, and RBC emphasized that point. They expect home prices will lower the pressure on budgets, more than reversing the climb of higher interest rates. “We expect benchmark prices to fall 14% nationwide by next spring— more so in Ontario and BC,” said Hogue.
Towards the end of next year, they expect affordability will have improved significantly due to price declines. However, things will get worse before they get better. “… the likelihood of further rate hikes from the Bank of Canada is poised to intensify affordability pressures before then,” warned the bank.
Restoring affordability and a healthy market should be the highest concern, to preserve the long-term viability of the market.