According to a new report from RBC Economics, the aggregate measure of housing affordability in Canada reached its worst level ever since 1989. The report found that buyers are facing higher costs due to rising prices combined with generally higher mortgage rates over the past year.
RBC’s Housing Affordability Index measures the proportion of median pre-tax household income required to cover the total ownership costs associated with a detached bungalow across all major markets in Canada. The index is currently sitting at 56.4%, an increase of 3.4 points compared to the same period last year. This marks the ninth consecutive quarter that the index has been above its historical average of 46.3%.
The report also looked at how much of a person's pre-tax income is going toward their mortgage payments. It found that in the fourth quarter of 2021, Canadians were required to devote 28.7% of their pre-tax income to mortgage payments, an increase of 0.3 percentage points from the same period last year. These results show that housing affordability is being impacted by both rising costs and higher mortgage rates.
When it comes to specific markets across Canada, affordability is widely varied. In Ontario, for example, the report found that the share of a typical pre-tax household income needed to cover mortgage payments rose to 38.0%, up 1.6 percentage points from the fourth quarter of 2020. In British Columbia, the report found that the index had risen to 82.9%, an increase of 8.5 percentage points from the previous year. This suggests that affordability has deteriorated more quickly in B.C. than in other parts of the country.
In addition, RBC’s report outlines the rising cost of owning a home across the provinces. In Ontario, the report found that the cost of owning a detached bungalow had risen by 10.3% year-over-year. In B.C., the cost had jumped to 14.2%. The report also found that in Alberta, Saskatchewan, and Manitoba, the cost of owning a detached bungalow had grown by 7.3%, 6.2%, and 4.7% year-over-year respectively.
Overall, these findings suggest that housing affordability is at its worst level in 31 years, and is likely to continue deteriorating as long as interest rates and housing costs remain high. Although there may be some small fluctuations in the market, the short-term outlook for affordability does not appear to be favorable.
In summary, research from RBC Economics indicates that the state of housing affordability in Canada is at its worst level in 31 years. Rising costs combined with higher mortgage rates have put significant strains on Canadian households. Homeowners in Ontario and British Columbia are particularly feeling the pinch, with the latter seeing the biggest jump in costs over the past year. These findings suggest that affordability is likely to deteriorate further in the near future unless there is an improvement in interest rates or a reduction in housing costs.
This article was contributed on Dec 14, 2023