Surging prices just dealt a severe blow to housing affordability and the outlook is ‘moribund’
Increase in interest rates, population not helping, say National Bank of Canada economists
Housing affordability in Canada was dealt a major blow in the third quarter as surging prices wiped out most of the gains made earlier in the year, according to the National Bank of Canada‘s latest housing affordability monitor.
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“If rates hold at their current level, it would only take a home price increase of two per cent in the fourth quarter to surpass the worst level of affordability in a generation, National Bank economists Kyle Dahms and Alexandra Ducharme said in an email. “The outlook remains particularly challenging for first-time homebuyers.”
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The report, which describes the outlook for affordability as “moribund” revealed a four-point increase in the Mortgage Payment as a Percentage of Income (MPPI), reversing the 1.6-point improvement observed in the previous quarter.
This decline in affordability was driven by a 4.6 per cent increase in seasonally adjusted home prices during the third quarter, coupled with a notable 32 basis point surge in the benchmark mortgage rate for a five-year term. Although median household income rose 1.2 per cent, it was insufficient to offset higher housing costs and mortgage rates.
This affordability decline was observed across all 10 major housing markets in Canada, with Vancouver, Toronto and Victoria experiencing the most significant deterioration. Condo affordability fell by 2.5 points while the non-condo segment experienced a more substantial decline of 4.5 points.
Dahms and Ducharme attributed rising prices to supply shortages, population growth and mortgage rate increases. They emphasized the upcoming immigration targets, which were due to be released on Nov.1, as crucial is determining the outlook for housing affordability, which currently looks grim.
Dahms said his team was concerned about housing scarcity amid high interest rates, noting that the current interest rate environment is dampening builder interest despite strong demand.
“If that gap isn’t made up, it could perpetuate a situation where housing remains unaffordable for a long time,” he said.
Last year, the federal government’s goal was to accept 465,000 permanent residents by 2023, 485,000 in 2024 and 500,000 in 2025. According to Statistics Canada, immigration largely drove the largest annual population growth in Canada since 1957, with the population increasing by over one million between July 2022 and July 2023.
• Email: shcampbell@postmedia.com
