Canadian housing is getting more affordable, but it’s still way out of reach for most. National Bank of Canada (NBF) released its Q2 2023 Housing Affordability Monitor (HAM) showing improvements in most markets. Despite rising financing costs, home prices fell enough to improve affordability. It was the third quarter to show affordability improvements, but it’s a long way from correcting 8 years of sharp erosion. Most of Canada’s households aren’t even close to being able to purchase a home at today’s prices.
Rising Rates Have Helped Affordability Improve For 3 Quarters
The C10 National Index, a weighted-average of the 10 most important real estate markets, shows home prices falling. The median sale price fell to $744,400 in Q2 2023, down 1.2% from the previous quarter and 8.1% lower than last year. Housing affordability improved due to home prices falling faster than financing costs increased. NBF notes it was the third consecutive quarter to show housing affordability improvements.
That was the good news. The bad news is that most households couldn’t afford to purchase a home at today’s prices. They aren’t even close, after roughly 8 years of eroding affordability.
Source: National Bank of Canada.
Most of Canada’s Households Can’t Afford To Buy A Home Today
Most of Canada’s population and jobs are concentrated in just a handful of major cities. All of them are now out of reach for households. The median home in the national index required a minimum annual household income of $175,900 to carry the mortgage in Q2 2023. NBF estimates this is more than double the median household income.
All of Canada’s Major Cities Are Out of Reach For Local Incomes
Canada’s major cities are out of reach for local incomes, and it’s hard to see a return to sanity. The minimum annual household income needed to qualify for a median home in Vancouver was $240k, nearly triple the local number according to NBF. More than double the local income was required in other key cities like Toronto ($225k/year), Hamilton ($205k/year), and Victoria ($204k/year). A small nugget of info for your knowledge bank—Hamilton was also Canada’s frothiest city in IMF research.
Canadian Households Can’t Afford Any Major Real Estate Market
The minimum income required to service the mortgage on a median home purchased today vs the median household income in each market.
Source: National Bank of Canada; Better Dwelling.
Quebec City was the only city even close to seeing home prices within range of incomes. A median home requires a minimum of $86.5k in annual income to carry the mortgage on a median home, 109% of the median income. It’s also the only city to see its affordability erode on the list, so it’s unlikely to last for long.
Canada is seeing affordability improve according to NBF, but only mildly. Home prices are deeply disconnected from incomes, and it would take a massive crash for affordability to return to pre-2015-levels.
Most households in the country can’t afford to buy a home, but there’s little to no effort to resolve the issue since, well… most households in the country already own a home. A lack of housing affordability primarily impacts younger households and immigrants. In general, both of these demographics are not expected to have the same favorable economic conditions as previous generations in Canada.