Photo: James Bombales

While the Canadian housing market continued to cool for much of the second quarter of 2018, housing affordability deteriorated in most of its major markets.

The ratio of homeowners’ mortgage payments in comparison to their incomes, known as MPPI, rose 0.2 per cent in Q2, after a 1.2 per cent rise in Q1, marking 12 months of consecutive deterioration. In total, seven of 10 major markets saw their MMPI rise last quarter.

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“The worst deteriorations were in Victoria (+1.5 points) and Quebec City (+0.8 points). There were slight improvements in Toronto (−0.2 points) and Winnipeg (−0.2 points),” reads the report. “The situation worsened in Montreal (+0.4)/Calgary (+0.2) and remained unchanged in Vancouver.”

The reason for the streak? Mortgage rates continue to climb, in line with the current rising interest rate environment. The Bank of Canada hiked the overnight rate — which affects mortgage rates — to 1.50 per cent in July, and is widely expected to do so again before the end of the year.

“Mortgage interest rates were on the rise for a fourth consecutive quarter in Q2,” write National Bank economists Matthieu Arseneau and Kyle Dahms. “Unsurprisingly, the rise in interest rates hit harder for the priciest markets in the country.”

Income gains in BC mitigated the impact on affordability for Vancouver, while Victoria was not so lucky, according to the pair.

“Nevertheless, Victoria experienced a sharp deterioration in both condo and non-condo segments as prices continue to swell despite [new mortgage rules],” they write.

The slowdown in home sales in Q2 led to softer home prices in Toronto and Vancouver, but the Dahms and Arseneau warn that the markets are still tight, and residents should brace for further affordability deterioration heading into the fall.

“Both cities remain a painful environment for new homebuyers and this is unlikely to change in the short term as central banks remain in a tightening mode,” they write.

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