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Housing affordability declining at levels not seen since the 1980s: report

Housing affordability is declining at levels not seen since the 1980s; however, the magnitude of the deterioration is much more pronounced this time, according to a new report from the National Bank of Canada. 

Canada has recorded seven straight quarters of declining housing affordability compared with 11 quarters from 1986 to 1989, economists Kyle Dahms and Alexandra Ducharme found. In 1989, following the rapid rise of real estate prices, prices dropped for several years, followed by a correction that lasted more than a decade.  

Housing costs are considered affordable if they account for 32 per cent or less of household income. On average, the monthly mortgage costs now cost the average Canadian household 67.3 per cent of its income, the most since 1981. Economists calculated that another 75 bps increase in interest rates would mean an additional $300 on the average household’s monthly mortgage payment. 

The good news? Dahms and Ducharme say falling house prices combined with stabilized interest rates should improve affordability in the coming months. “The slowdown in real estate activity in several markets is expected to result in a cumulative 15 per cent decline in home prices in 2023 from the peak,” the report states.

Economists measured housing affordability in 10 of Canada’s largest cities. They looked at mortgage costs based on the average cost of a home (all dwellings) and the amount of time it would take to save for a downpayment based on the region’s median annual income. Edmonton and Quebec City were the only cities where the cost of a mortgage did not exceed 32 per cent of a household’s monthly income. 

 

Regional breakdown

 

Vancouver

Median home price – $1.38 million

Median annual income – $90,000

Months of saving for a downpayment – 368 or 30.5 years

Mortgage payment as a percentage of income – 102%

 

Victoria

Median home price – $1.15 million

Median annual income – $76,000

Months of saving for a downpayment -362 months or 30 years

Mortgage payment as a percentage of income – 101%

 

Toronto

Median home price – $1.25 million

Median annual income – $90,000

Months of saving for a downpayment – 335 months or 28 years

Mortgage payment as a percentage of income – 93%

 

Hamilton

Median home price – $950,000

Median annual income – $93,000

Months of saving for a downpayment – 90.5 or 7.5 years

Mortgage payment as a percentage of income – 68%

 

Ottawa/Gatineau 

Median home price – $656,000

Median annual income – $89,000

Months of saving for a downpayment – 54.5 or 4.5 years

Mortgage payment as a percentage of income – 50%

 

Montreal 

Median home price -$546,000 

Median annual income – $73,979

Months of saving for a downpayment – 48 or four years

Mortgage payment as a percentage of income – 48%

 

Calgary

Median home price – $501,000

Median annual income -$90,000

Months of saving for a downpayment – 33.5 or 3 years

Mortgage payment as a percentage of income – 37%

 

Winnipeg

Median home price – $410,000

Median annual income -$80,000

Months of saving for a downpayment – 30.5 or 2.5 years

Mortgage payment as a percentage of income – 34%

 

Quebec City

Median home price – $369,000

Median annual income – $77,000

Months of saving for a downpayment – 29 or 2.5 years

Mortgage payment as a percentage of income – 32%

 

Edmonton

Median home price – $420,000

Median annual income – $88,000

Months of saving for a downpayment – 28.5 or 2.5 years

Mortgage payment as a percentage of income – 32%

 

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