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- RBC’s aggregate affordability measure for home ownership costs has reached its “worst-ever level.”
- The situation is particularly dire in British Columbia and Ontario, where affordability is stretched to its limits. However, other parts of Canada are also being affected by the rising interest rates.
- Potential buyers may soon find some relief; RBC economists expect the national benchmark price to fall 14 per cent from its 2022 peak.
Canada’s real estate market has never been less affordable, according to a new report from RBC Economics.
The Bank of Canada’s repeated rate hikes drove RBC’s aggregate affordability measure to 62.7 per cent, its “worst-ever level,” a drop of 14.5 percentage points over the past year, calculates Robert Hogue, author of the report and economist with RBC.
This trend is being felt across the country, with buyers facing higher ownership costs in every market, warns RBC.
The situation is particularly dire in the provinces of British Columbia and Ontario, where affordability is stretched to its limits. However, RBC reports other parts of Canada are also experiencing the impact of rising interest rates on home ownership costs.
A six-figure income to qualify
In some cases, the increase in the minimum qualifying income needed to purchase a typical home (at the benchmark price) has been unprecedented.
According to the report, in the third quarter of 2021, a buyer in the Vancouver area needed to earn a minimum of $200,000 annually to qualify for a mortgage. Just one year later, that number has skyrocketed to $268,000, a 34 per cent increase. Similarly, the minimum qualifying income in the Toronto area has risen 29 per cent to $240,000.
Hogue says to purchase a home now, buyers in Victoria, Vancouver, Calgary, Toronto, Ottawa, Montreal and Halifax must all have a six-figure income to qualify. These high-income requirements mean only those in the upper bracket can afford to buy in the current market.
“It’s never been so unaffordable to buy a home in this country,” writes Hogue.
In fact, RBC’s aggregate measures have reached new record highs in Victoria, Vancouver, Toronto, Ottawa, and Halifax, with affordability at its worst level ever in these markets.
Canada’s housing market has been in a state of significant correction since spring due to the continued decline in affordability. Nationwide, home resales have decreased by 36 per cent, with even larger declines in B.C. and Ontario, reaching levels lower than those seen before the pandemic, writes Hogue.
Affordability issues aren’t likely to reverse quickly
While the pace of decline has slowed in recent months, and falling prices seem to be slowing, it is still unclear if these are signs that the correction is coming to an end, though Hogue says these may be “early signs” it’s approaching its final stage.
“Affordability issues aren’t likely to reverse quickly. It will take more time for the market to absorb the rise in mortgage rates,” writes Hogue. “We expect the market to bottom out around spring.”
Some relief for potential buyers
However, relief may be on the horizon for potential buyers. Experts predict “some affordability improvement” in the year ahead.
RBC economists expect the national benchmark price to fall 14 per cent from its 2022 peak, leading to lower ownership costs once interest rates stabilize.
“We think that could start in the early part of 2023—though the timing is poised to vary by market. Growing household income will partly drive the improvement process,” Hogue writes.
He finishes, “It will likely take years to fully reverse the tremendous deterioration that took place since 2021.”
Very sad state for Canadian families looking to fulfill home ownership dreams. Given the high prices and excessive commissions on these sales, sellers want to recoup commission fees and this adds to the average cost of homes. Perhaps regulators should establish flat rate fees that are inline with the effort and costs to sell a home. The boast of sold in 2 hours 200K over ask and look at my new Porsche & Mercedes day’s are hopefully done.
Very unfair to blame realtors for this problem! Realtors have to make a living too! And if they work very hard then good on them! It’s the very wealthy driving the price of homes up and purchasing many homes to make into rental properties and sky high rents! This article is about young ppl getting into the housing market! Shame on you !
Maybe the government should limit 1-2 home purchases for the wealthy instead multiple homes
Says the realtor
Does it really take $34,000 to sell a $1,000,000 property – especially when it only took $20,000 to sell the same property just a few years ago. Also, how many Realtors actually pick up clients and drive them around to properties for sale, then actually physically show the properties to them. Then when they do get an offer, how many Realtors actually present the offer to the sellers in person – no – most of the “work” is done over the internet, with email, and with DocuSign, etc. Not only that, but most of the time buyers pick out the properties online, that they want to see. IMO, Realtors may be in for a rude awakening when Blockchain Smart Contracts start being used and they become obsolete, along with lawyers.
AN, you are absolutely correct.
It’s amazing when dose who have zero clue the work a real realtor does for a client, start judging someone else’s value.
Perhaps these critics should spend more time evaluating their own worth and why they deserve the paycheque they get.
Further, if realtors make so much money why don’t the jealous give up their jobs and become a realtor.
A dedicated fulltime realtor does not have a second job.
A fulltime realtor is not a part-time teacher, police officer, fireperson, house wife/husband or anyone who has a fulltime job and dare call themselves a realtor.
Yes, a lot of homes were sold in 2 hours or 2 days (as the critic says) in this most recent market. “It was NOT a normal market.”
Would the critic then suggest that if the property took 2 weeks or 2 months to sell, the realtor’s pay would then be more justified?
Has the critic taken the time to do some math to understand the work it takes to be a realtor? The work that goes on behind the scenes? What it costs and the expenses of a realtor? The cost of promoting their home? The promotion they expect to get the most money from the sale of their home?
Is this individual so ignorant not to consider that a realtor does not receive all the fees? Or simple math all they seem to be able to do!
Let’s consider the fees paid to the realtor’s broker. Marketing costs. Income tax, CPP, Insurances, etc…. And the cost (overhead) of running & a business.
On the other hand the critic gets their paycheck. They get a nice benefit package, sick days, paid vacation time, +++.
On retirement, some possibly get company pension, union pension and other benefits.
Realtors by the way get NON of these while working or after. All out of pocket.
So, before one judges, make sure you know fully what you are talking about, look in the mirror and try justify your worth and if you deserve what you get paid.
I don’t speak for all realtors. I agree many shouldn’t and don’t deserve to be in the business. But…. that’s my opinion.
Yours, the individual that speaks out of ignorance, is not an opinion and has no value.
You are the one that will always rely on a realtor to sell your property and expect the most money for it. And, when buying, love when your realtor negotiated a great deal for you.
YOU ARE WELCOME!
Anonymous – You are correct.
Perhaps your employer should also cut back on what you earn or every day you get to work negotiate your daily remuneration with you as well.
After all, if this is good for one industry, why not with all industries every job and every worker.
Mr Hogue- i would be interested in knowing the affordability of 1980-81 when mortgage rates were close to 18% and high salaries were much lower than today. Just wondering, given your statement that it was never been this unaffordable ( ever?)
In the 80’s my first home was $40k
Almost everyone earning an average income could buy a home
Rising interest rates ti fight inflation is a stupid concept as it does not reduce demand but it does reduce supply – it just increases cost of home ownership and all other living costs with idea we stop spending – unfortunately the major amount of under 45 home owners gave large mortgages so their new cost of refinancing can be adding 1000/2000+$ /month after tax expense to them which is providing a larger profit to banks and a wealth transfer to the older generation without mortgages –
If the government was serious to stop inflation they needed to impose a temporary forced employment savings plan that took a graduated amount of income and force this into a 5 year tfsa – this way the money remains in ownership savings to the consumer as an equity – it increases pool of savings which banks can be forced to lend in Canada –
Fighting inflation by destroying the lives of our younger generations is bad policy
Purchased our first home in 1978 in BC’s central interior. Happy to get in at 14 1/2%.( no mortgage porting, penalties with any changes) Price was about 4 times annual salary, home was very bare bones box that needed $. Heating costs were more than mortgage payments 6 months of the year. Groceries prohibitive. Doing your own DIY, driving old cars etc. No shopping or hospitals for 45 miles.
At that time you took whatever work you could get and worked as much overtime as possible to get ahead. No texting, chit-chatting, or browsing the internet on the boss’ time putting in a hard-day’s work or get out the door.
Few meals out, no drugs or drinking and raise your young family on a shoestring.
Just put your head down, The old adage that you worked the first 40 hrs a week to meet your commitments and the rest helped you get ahead was true.
Despite what this generation thinks, life wasn’t all disco and pot. It was hard work and budgeting. The bank of mom and dad did not exist. Shame on you if you were voting age and even considered that a possibility! If anything, you helped with those kids left at home or helped Mom & Dad.
Part of the reason that homes recently got so expensive was “cheap” money. Retirees who survived the high interest rates of the 80’s(mortgages in 20% range even though prices doubled in 3 yrs.)and 90’s were helping their kids have the best that any generation has ever had it, and never got much return for the little they could save for retirement. They had their homes and that was about it for most, maybe they bought a modest rental with some of their equity to subsidize their pension later.
The current politicians have been buying votes for years and cow-towing to special interest groups, WEF, UN, etc.
The $ that were blown on CERB etc were wasted and we will pay for it forever. Too many folks ripped off the system and their work ethic was ruined.
But, this started earlier with the folks in the cities drinking the “Kool aid” that resource industries and manufacturing were BAD – we just gave those high-paying jobs to the rest of the world with fewer environmental regulations and bought the products back with cheap credit from them and turned ourselves into a service country.
Time for Canadians to wakey, wakey….
Realtors can lead the pack!
The ridiculous level of the interest rate and just printing money by the central bank so Trudeau can give it away in truckloads to other countries. And killing our oil and gas resource industry is criminal.
Canada could be a world leader in this area and be financially and economically successful, but our government wants to tax Canadians into poverty. And hide behind the climate change banner. China interestingly enough does nothing until 2030?
Only person to put this on is our PM.
I am sick of so much drama, I started selling in a recession in 1985. Many could not afford to keep their houses because at renewal rates were up so high, no government (our taxes) ever helped them? No one helped me buy a house when I had to save 10% down. People have to start thinking outside the box and realize that people may have to share a purchase and live together like they do in other countries where affodability is an issue. We all want too much in North America. It makes me mad. It is ridiculous to think that we can just provide all this affordable housing? We have tons of developments getting fast tracked for these million dollar corporations and our government in Nova Scotia says; so they can create affordable housing. Bull shit! They won’t be affordable due to construction costs and what does affordable mean. There is no money left. Need more accountability from those living on social assistance, need buildings made into multi housing, rooms and share a kitchen or something. That might be affordable. I am so tired of the level of negativity in the news. Wording is everything. Life is going to get tougher peruod. Of course sales will be affected by NO international buyers for 2 years (I know there are exceptions) and rates. Whoever the party or head of governement, they all suck and none of them have a clue what to do. Reality is; every market is a challenge in its own way. I don’t believe in the governement interfering as much as they do in terms of the economy. Bottom line is economies keep churning and one has to be prepared to do the work to get thru it. I think people also need to learn to live within their means. Young people want everything now That isn’t natural either. It takes time to build a downpayment but more importantly people need to stop spending so much as well! Remember this is juat an opinion and it may change…