Housing affordability continues to worsen in multiple Canadian cities, having recently declined at a rate not seen in the last 27 years.
New insights published this week by the National Bank of Canada in its Housing Affordability Monitor report show that housing affordability worsened by 3.2 points during Q2-2021, the sharpest deterioration recorded since Q2-1994. Mortgage payments now account for 45 percent of income for a representative household, which is above the average recorded in 1980, then 43 percent.
Income growth and lower interest rates have supported the improvement of affordability over the past two years, the report says, but this is no longer the case with home prices now outpacing income increases. Meanwhile, mortgage interest rates have also risen on a quarterly basis, jumping 22 basis points in Q2-2021, the largest one-quarter increase since Q3-2017.
“Higher levels for home prices are consequential on accessibility for potential homebuyers,” wrote report authors Kyle Dahms and Alexandra Ducharme. “Rising prices have increased the burden of accumulating the minimum down payment.”
Quarterly and annually, home price growth was the strongest since 1989, as prices climbed 5.9 percent during Q2-2021 and 14.8 percent year-over-year. These increases amounted to a $38,000 jump in the median home price in Canada over the quarter, and a $89,000 increase from a year ago.
Across the country, it would now take 69 months at a 10 percent savings rate for a household earning the median pre-tax income to build a minimum downpayment, which is higher than last year’s 57-month timeline.
Of the ten markets analyzed in the report, affordability deterioration was tracked in all of them during Q2-2021. In Canada’s two most expensive markets especially, home affordability showed fews signs of improvement.
In Toronto, mortgage payment as a percent of income (MPPI) ticked up 2.4 percent for condos and 5.4 percent for non-condos on a quarter-to-quarter basis, totaling 37.3 percent and 65.6 percent.
As prices for all home types in the city rose 6.9 percent during Q2-2021, it would now take 318 months (over 26 years) at a savings rate of 10 percent to build a downpayment for a non-condo Toronto property, now priced at $1,146,667. Condo property types, however, require significantly less savings time at 56 months for the representative condo price of $652,308.
Yet, the annual household income needed to afford a Toronto home is still firmly planted in the six-figure range. For the representative non-condo property, buyers would be required to bring home $196,913 a year, and $131,387 for a condo.
Housing affordability in Vancouver also took a hit during Q2-2021. The MPPI of a non-condo home jumped 6.3 percent quarter-to-quarter to 84.7 percent, while the MPPI for condos rose 1.6 percent quarter-to-quarter to 37.7 percent. Property prices increased 5.8 percent during the second quarter, with the representative price of a non-condo set at $1,472,563 and $655,352 for a condo.
In Vancouver, it would take 411 months (over 34 years) to save for a downpayment on a non-condo home, but a much shorter interval of 57 months (less than five years) for a condo property. Annual incomes for both non-condo and condo properties located in Vancouver also require high household incomes of $252,877 and $131,975, respectively.
