canadians saving downpaymentPhoto: James Bombales

As home prices surge across the country, saving for a downpayment has become an even bigger challenge for potential buyers.

According to the National Bank of Canada’s Housing Affordability Monitor, it currently takes a household earning the country’s median income 60 months — or five years — at a savings rate of 10 percent to reach even the minimum downpayment on a typical Canadian home.

Bank economists Kyle Dahms and Camille Baillargeon put it bluntly: “At a national level, there has never been a worse time to accumulate the minimum down payment.”

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What makes the current situation so unusual is that despite the economic damage the country has sustained through the pandemic, housing affordability actually improved by some measures through 2020.

Dahms and Baillargeon say that record low mortgage rates and higher incomes meant that in the final months of 2020, Canadian homes reached a level of affordability unseen since 2015. National Bank calculates housing affordability by looking at changes over time to the monthly mortgage payment on a median-priced home, assuming a 25-year amortization period and a five-year term.

But for aspiring homebuyers who are only beginning to save for a downpayment, the situation has only worsened in recent months. That’s because soaring home prices recorded across the country have increased the minimum downpayment required to purchase a home.

And things are set to become even more challenging as affordability is likely to deteriorate in the coming months while prices are expected to continue rising through the year.

“[W]ith interest rates unlikely to rise soon, vaccine rollout ushering a return to normal and market conditions in favour of sellers, home prices are on track to keep growing in 2021,” wrote Dahms and Baillargeon.

“As a result, affordability is likely to deteriorate on both a mortgage payment as a percentage of income and down payment basis going forward,” they added.

On a local market level, the economists wrote that housing affordability improved in Vancouver, Calgary, Winnipeg, Edmonton and Quebec City in the fourth quarter. Hamilton, Ottawa, Montreal and Toronto recorded deteriorations in affordability while Victoria remained unchanged.

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