We apologize, but this video has failed to load.

Try refreshing your browser, or
tap here to see other videos from our team.

Posthaste: Canada's housing affordability crisis is worse than ever Back to video

We apologize, but this video has failed to load.

Try refreshing your browser, or
tap here to see other videos from our team.

Play Video

A rapid increase in interest rates has made Canada’s housing affordability crisis worse than ever, but relief could be on the way in the new year, according to the Royal Bank of Canada.

Households in the third quarter needed 62.7 per cent of their income to cover the costs that go into owning a home — the worst level on record, RBC said in its latest report on housing affordability. That’s a loss of 14.5 percentage points for affordability over the past 12 months, something author Robert Hogue called “astounding.”

The news is even more grim if you live in Vancouver or Toronto, where it takes 95.8 per cent and 85.2 per cent of income, respectively, to pay to keep a roof over your head. While income amounts needed for housing are less shocking in cities such as Edmonton or Calgary, at 41.6 per cent and 31.2 per cent, respectively, no housing market has been spared rising costs, RBC said.

The affordability crunch comes after home prices soared to new heights earlier in the pandemic. Then, a series of unexpected interest rate hikes to tame a fast-rising inflation rate made things worse for those seeking a mortgage. For example, to buy a home in Vancouver at the benchmark price in the third quarter of 2021, households needed an income of $200,000 to qualify for a mortgage. Fast forward a year later, and households need an income of $268,000 — 34 per cent more. It’s a similar story in Toronto, where households need to earn 29 per cent more to get a mortgage.

Smaller markets are also feeling the pain. In Halifax, income needed to get a mortgage is up 44 per cent in the third quarter from the same time last year. In Saint John, N.B., the minimum qualifying income is up 41 per cent — though it’s still the lowest in the country at $74,000.

“Higher mortgage rates require deeper pockets from coast to coast,” the report said.

Household incomes aren’t keeping pace with rising rates. In 2020, the median income across Canada was $84,000, data from Statistics Canada’s 2021 census shows. That means homeownership has been pushed out of reach for many, leaving only the wealthy able to afford to jump into the market.

“What was already a very tough hurdle to clear is now nearly impossible for many potential purchasers,” the report said.

However, relief could be coming soon. Home prices have been sliding since interest rates started rising. Those declines have slowed somewhat and RBC believes we are now in the final stages of the price correction. It expects the benchmark price of a home will have fallen 14 per cent from its peak by the spring, and that, combined with a pause in interest rate increases, will help ease the affordability crunch. At the same time, household income levels are also expected to rise, giving potential homebuyers more purchasing power.

Still, RBC expects it will take a while before the country experiences a marked improvement in affordability. “It will likely take years to fully reverse the tremendous deterioration that took place since 2021,” Hogue wrote.

The report comes as more people want to buy a home. In Ontario, 69 per cent of renters say they “really want” to own a home, according to a survey conducted by the Ontario Real Estate Association (OREA). But 82 per cent acknowledge that higher mortgage rates are making it difficult to fulfil their dreams.

Meanwhile, close to two-thirds of Ontarians say they are spending more than 30 per cent of their budget on housing amid rising interest rates. A further 95 per cent say the cost of living is more expensive than it was two years ago, with half saying they’ve had to cut back on restaurants, entertainment and grocery bills as mortgage rates climb.

“These rapid, outsized increases we have been seen to curb inflation are hurting Ontario’s families,” Stacey Evoy, OREA’s president, said in a press release. “It’s clear Ontarians are feeling the financial pressures of inflation amid an existing affordability crisis.”

OREA recommends governments boost housing supply to address affordability, along with providing additional financial aid for first-time homebuyers, exploring changes to the mortgage stress test, and increasing the CMHC mortgage amortization period from 25 to 30 years, among other suggestions.

_____________________________________________________________

Was this newsletter forwarded to you? Sign up here to get it delivered to your inbox.
_____________________________________________________________

Economists say there is a seven-in-10 likelihood that the U.S. economy will sink into a recession next year, slashing demand forecasts and trimming inflation projections in the wake of massive interest-rate hikes by the United States Federal Reserve.

The probability of a downturn in 2023 climbed from 65 per cent odds in November and is more than double what it was six months ago, according to the latest Bloomberg monthly survey of economists. The poll was conducted Dec. 12-16, with 38 economists responding about the chance of a recession.

The median estimates see gross domestic product averaging a paltry 0.3 per cent next year, including an annualized 0.7 per cent decline in the second quarter and flat readings in the first and third quarters. Consumer spending, which accounts for about two-thirds of GDP, is projected to barely grow in the middle half of the year.

— Bloomberg

___________________________________________________

___________________________________________________

_______________________________________________________

____________________________________________________

Few things are more valuable for a business than ranking well on a search engine. Discoverability is the key to growth, and everyone who ranks ahead of you is poised to get more eyes on their website, services and so forth. For SEO specialists, helping individuals and businesses perform better on search is proven to be a remarkably profitable and valued service in the digital age. Our content partner StackCommerce recommends anyone launching or running an SEO business or side hustle use Juice.ai, an AI content creation tool. This artificial intelligence model is trained to generate 100 per cent unique and standout content that generates meaningful results on Google. Plus, its optimization and automation capabilities are designed to save specialists time on research, writing and copyediting.

____________________________________________________

Today’s Posthaste was written by Victoria Wells (@vwells80), with additional reporting from Financial Post staff, The Canadian Press, Thomson Reuters and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com, or hit reply to send us a note.

Listen to Down to Business for in-depth discussions and insights into the latest in Canadian business, available wherever you get your podcasts. Check out the latest episode below: