How Disconnected Are Canadian Real Estate Prices From Incomes? VERY

Canada’s Middle Class is seeing its shot at homeownership vaporize, but it wasn’t always this way. Not just in expensive cities where lofty expectations pushed ownership out of reach for all except high-income households. But now most cities across Canada are out of reach for the country’s Middle Class. A median household now needs to spend up to 80% of their income to pay the mortgage on a home in their local market.

Median Canadian Household Needs To Spend 53% of Income

Canada’s cities have never been affordable but the gap is now comically large. A median household needs to spend 53.2% of its income to carry a mortgage on a typical home in Q1 2022. That’s a 13 point increase from the average since 2000 (40.5%), already outside of reach for most buyers. The recent phenomenon pushes it to extreme levels even for an already disconnected trend. 

How Much Has Affordability Changed For Canadian Real Estate?

The share of income a median household would need to spend to service the mortgage on a typical home across Canada in Q1 2022.

Source: NBC; Better Dwelling.

Toronto Buyers Would Need To Dedicate 75.6% of Income For A Mortgage

Canada’s largest city pushes this number to an extreme. A median household would need to spend 75.6% of their income on a mortgage in Q1 2022. It’s 25.9 points higher than the average since 2000 (49.7%). It was already next to impossible for the city’s residents to buy a home. Now they’re expected to dedicate 50% more income than the previous generation did. 

Vancouver Households Have The Lowest Chance of Owning A Home

Vancouver real estate is some of the priciest in the world, so it shouldn’t be a surprise that it’s not affordable. What might shock you is how little people make compared to the gilded city’s home prices. A median household would need to dedicate 81.4% of their income to service a mortgage on a typical home in Q1 2022. This is up 18.2 points from the average since 2000 (63.2%). Needless to say, but we will anyway — it’s the most extreme number across Canada.

Calgary and Edmonton Have Seen Improvements In Affordability

Only two major markets in Canada are more affordable than usual — Calgary and Edmonton. Calgary’s median household needs to spend 27.9% of its income to service a mortgage if buying a home in Q1 2022. That’s 4.5 points lower than the long-term average since 2000 (32.4%). It’s pushing the limit, but it’s always been possible for a median household to buy a home in Canada’s third-largest city.

Edmonton real estate also saw an improvement in its already affordable housing. A median household needs to spend 25.5% of its income to service the mortgage if buying a typical home in Q1 2022. It’s a drop of 3.9 points from the long-term average since 2000 (29.4%). It was possible before and improved.

Canada’s markets that have seen affordability improve did so for various reasons. Home prices didn’t fall but incomes climbed much faster than debt servicing costs did. With all of the talk of rate hikes being punitive, most people don’t realize rates are still 41% lower than the start of 2020. The erosion in affordability in most markets is due to low rates fueling exuberance, with households still getting a discount on capital.

13 Comments

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  • Van YIMBY 8 months ago

    The plan is to get everyone in a home owned by a pension fund so the rent fuels boomer retirements.

    Canada’s big pensions are some of the most predatory investors in the world.

  • Andre Melnyk 8 months ago

    How is possible that this can last?

    • Simon Chan 8 months ago

      Short answer: It’s not.

      It’s only ever lasted for a few months at this level. They’re trying to ramp rates up as quick as possible so they can cut and hope you find buying at this cost next year will be attractive. We don’t have a market-based central bank but a Soviet-style central planning committee overriding government policy to try and influence the economy in the areas it seems fit, ignoring all traditional warnings.

  • Nassim 8 months ago

    It’s actually kind of funny to think the government saw these stats and went, “you know what people need? That ability to borrow more money. Let’s lower rates and then buy mortgage bonds because we need it lower than low rates will permit — we need inflation to help out.”

  • Kate Wright 8 months ago

    They wonder why Millennials will just go out and blow our money. Even if all of our money went to paying a mortgage it’s not enough.

    Why not do what Boomers did and kamikaze then demand the state fix a lack of planning for 50 years of not preparing. Mimosas anyone?

  • Woolsock 8 months ago

    Can anyone explain then what’s in the gap between “Properties are pretty much unaffordable” and the fact that roughly 78% of Canadian households own (or owe) their property?

    After housing expenses, there can’t be much household money left over to, say, run an economy or tax base on, but here we are. Other than selling the semi-flammable mud we found, some rocks and some sticks to others, we don’t really have any hugely competitive international companies that actually innovate and MAKE money. We just seem to trade things, like houses or internet, to one another for arbitrarily higher values. The TSX outperforming the S&P can’t just be us paying our banking fees and silly mobile phone bills…or can it?

    Ugh, so many questions. What gives, how are we not a rapidly “undeveloping” country?

  • Bojack 8 months ago

    Would have been super helpful if in addition to stating the % of the median income required to buy a house in a given city you also gave us what the median income in C$ in fact was in those cities. Otherwise the data is kind of useless to any given individual.

    • WE 8 months ago

      The entitle generation thinks something useless to them is useless to everyone. What a surprise?

  • Fabio Pento 8 months ago

    This is just more proof that owning a home is a privilege not a right. If you cannot afford it, don’t buy it. As a home owner, I shouldn’t be punished for trying to sell my home and to whom, because the government is putting more regulations on who can buy my home. Canada has become a socialist society. Time to pack up and go.

    • alex 8 months ago

      Likewise, you shouldn’t benefit, at the expense of everyone else, from gross government and central bank negligence in enacting sounds fiscal and monetary policy, yet here we are.

  • Alex Lapukhin 8 months ago

    The narrative so heavily promoted by Better Dwelling would have come as a whole lot more credible if they were able to forecast huge price increases of the past rather than singing the same old tune of overvaluation and impending “correction”. It’s a not that cried wolf story time and again.

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