Photo: James Bombales
By now, it’s old news that Canada’s housing affordability crisis is only getting worse. But while many would-be buyers have written off red hot markets like Toronto and Vancouver, they may have to reconsider their back-up cities as well.
RBC’s aggregate measure for affordability in Canada has risen for a ninth consecutive quarter. Buyers now have to put 48.7 per cent of their income towards housing in order to afford a home.
While prices climbed in Vancouver and Toronto, affordability deteriorated in almost all Canadian markets. Two cities that were particularly affected? Montreal and Ottawa.
“In both Ottawa and Montreal, affordability worsened with the aggregate measures trending increasingly above their respective long-run averages,” reads the report from RBC.
Ottawa home resales are increasing steadily, on track to a record high, while prices are rising at their fastest rate in seven years.
“There is great vitality in the market right now, but consequently we are seeing Ottawa become less affordable for local buyers,” writes RBC senior VP and chief economist Craig Wright in the report.
Meanwhile, a reinvigorated local economy and strong labour market have meant rising prices in Montreal as well.
“[These factors] have helped raise the confidence levels of buyers, although higher interest rates and tightening mortgage lending rules may dampen things later in 2018,” he writes.
Starting January 1, a new mortgage stress test will require all uninsured mortgage borrowers to qualify against the Bank of Canada’s five-year benchmark rate, or at their contract rate plus an additional 2 per cent. That, combined with likely increases by the Bank of Canada in the overnight rate, could cool things down in the new year.
“Higher interest rates could have significant implications for housing affordability in Canada,” reads the report. “We expect the Bank of Canada to build on the rate increases it made in 2017 by hiking its overnight rate three times in 2018.”