Photo: Spiroview Inc. / Adobe Stock

Housing affordability in Canada took another hit last quarter as mortgage payments accounted for a higher percentage of income in many cities.

Last week, the National Bank of Canada (NBC) released its Housing Affordability Monitor report for Q3-2021, which indicated that the mortgage payment on a representative home as a percentage of income (MPPI) jumped 1.7 points. This follows a 3.2-point increase in Q2-2021, and marks the third consecutive quarter that affordability has deteriorated in Canada.

Home prices continued to march upwards by 4.6 per cent during Q3-2021 and 18.6 per cent year-to-year, the latter being the highest increase since 1989.

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Accounting for the last 12 months, NBC said that affordability has worsened the most in a decade as the income needed for a representative household to service a mortgage on a representative home hit 46.5 per cent. In order to buy the representative home in Canada, it would now take 74 months — a little over six years — at a 10 per cent savings rate for the median pre-tax household income to gather enough funds for a down payment. This is double the 37-month average since 2000.

“Although interest rates were essentially unchanged in the quarter and income continued to grow at a decent pace, a strong jump in home prices was more than enough to reduce affordability,” explained authors Kyle Dahms and Alexandra Ducharme in the report.

Whilst mortgage rates were not a factor that impacted affordability this quarter, NBC said that the outlook is “not particularly bright” for prospective home purchasers. This month, mortgage interest rates have moved up nearly 25 basis points (bps), and there is potential for a 100 bps hike, which could bring about a 12 per cent reduction in buying power for the same payment.

Each of the 10 Canadian markets analyzed in the report recorded a worsening in affordability, most notably Vancouver, Victoria and Toronto.

Photo: Spiroview Inc. / Adobe Stock

In Toronto, the MPPI for non-condo and condo dwellings grew 2.3 per cent and 0.7 per cent from Q2-2021 to Q3-2021, up to 68.1 per cent and 38.1 per cent, respectively.

If you’re in the market for a non-condo home — which costs $1,195,754 on average — it would require a representative household annual income of $205,342 and 330 months (27.5 years) to save for a down payment to afford one. Toronto condo buyers get a bit of a break, with the representative price equalling $669,593, which needs a yearly income of $134,726 and 58 months (4.8 years) of saving for a down payment to acquire.

On the opposite side of the country, the MPPI in Victoria and Vancouver shot up even higher compared to Toronto.

Rising 4.1 per cent and 0.9 per cent quarter-to-quarter, the MPPI in Vancouver for non-condo and condo homes is 89 per cent and 38.8 per cent as of Q3-2021. A household would need to bring home $267,641 and save 432 months (36 years) at a 10 per cent rate to afford the representative non-condo home of $1,558,535.

Yet, it would take significantly less time to save for a Vancouver condo of $678,614, which needs an annual income of $136,469 and 59 months (4.9 years) of saving for a down payment to afford.

Buyers in Victoria — where the MPPI for a non-condo and condo dwelling is currently 72.2 per cent and 37.6 per cent — can also expect hefty saving timelines.

To afford the representative $1,072,800 non-condo home, a household needs a yearly income of $184,228 and 350 months (29.1 years) of savings at a 10 per cent rate. Gathering enough for a down payment on a condo requires a fraction of the time, about 50 months (4.1 years) and an income of $113,307 to afford the representative price of $558,722.

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