Housing affordability has deteriorated to its worst level in more than 30 years, according to data from the Bank of Canada.
The BoC released the first quarter results of its Housing Affordability Index (HAI) last week, which rose sharply compared to the previous quarter.
The figures show that a household now has to spend 42.8% of its disposable income on housing-related costs. That’s up from 39.7% in Q4 2021 and 34.7% a year earlier.
The index measures the share of income needed for housing expenses, such as mortgage payments and utilities, but excludes property taxes.
The release follows similar findings from the National Bank of Canada’s first-quarter Housing Affordability Monitor. That measure, which strictly tracks the cost of carrying mortgages, marked its fifth consecutive deterioration.
“For the first time since 1994, it will take more than 50% of a typical household’s income to service the mortgage on a typical home in Canada’s major urban centers,” notes NBC.
The change was prompted by a then-quarterly 46bps increase in the 5-year benchmark rate used in the report’s affordability metrics – the biggest quarterly increase since 2013.
Since then, both fixed and variable interest rates have risen significantly.
Desjardins is revising its outlook for the housing market
Desjardins is the latest bank to revise its forecast for the country’s housing market.
In a research note published Thursday, Desjardins economists said they expect home prices to fall between 20% and 25% from their peak in February to December 2023. They had previously forecast a 15% decline.
“After peaking in February nationally, home prices continue to fall and have more to go before bottoming out,” they wrote.
However, “despite the accelerated rate of decline, we remain of the view that house prices will end 2023 above their pre-pandemic levels nationally and in every province,” they added. “However, this will not be the case for sales, which have declined enough to return most housing markets to balanced territory.”
Desjardins noted that his “gloomier outlook” was due to a string of weak data so far this year, along with more aggressive monetary tightening than expected.
“However, the weakness of the Canadian economy, mainly due to the housing market downturn, should prompt the bank to begin cutting rates by the end of next year,” the economists added. “Markets seem to be anticipating this already, as bond yields have likely peaked.”
The revision follows similar moves by RBC (link) and BMO. RBC economist Robert Hogue wrote recently that he expects home resales to fall nearly 23% this year and 15% next year, with the national benchmark price falling a total of 12% “peak to trough” through the second quarter of 2023 .BMO, meanwhile, expects prices to fall more than 20%.
Home prices continue to rise: RE/MAX
Despite a softening real estate market across the country, recreational properties in Canada continue to enjoy strong demand, according to a recent RE/MAX report.
Although vacation property sales have fallen sharply, median prices remain well above year-ago levels as of May.
“Supply levels are still at historically low levels, which means that if we see a continued slowdown in sales activity, there is plenty of room for the market to absorb a welcome increase in available listings,” said Chuck Murney, president of the Lakelands Association of Realtors. “Prices are still hovering near their all-time highs, but have started to show signs of a breakout.”
Here are some examples of how home prices have held up across the country, again as of May 2022:
- Kawartha Lakes, Ontario
- Sales: -35.5% (YoY)
- Median price: $806,000 (+30.4%)
- Powell River Sunshine Coast, BC
- Sales: no change
- Average price: $677,950 (+43.3%)
- Prince Edward Island
- Sales: -8.5%
- Average price: $405,686 (+20.9%)
- Lethbridge, AB
- Sales: -3.8%
- Average price: $348,603 (+7.4%)
RE/MAX added that the villa is “no longer just the focus of retirees looking for a quiet life in their golden years or families looking for fun in the summer sun,” but rather a hot spot for young professionals who are increasingly working from home .
“The villa becomes their primary residence, not a vacation home,” the report noted.
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