{"id":19708,"date":"2022-04-12T15:15:00","date_gmt":"2022-04-12T22:15:00","guid":{"rendered":"http:\/\/www.roryc.ca\/blog\/?p=19708"},"modified":"2022-04-12T07:53:16","modified_gmt":"2022-04-12T14:53:16","slug":"housing-affordability-hits-worst-level-in-3-decades","status":"publish","type":"post","link":"https:\/\/www.roryc.ca\/blog\/2022\/04\/housing-affordability-hits-worst-level-in-3-decades\/","title":{"rendered":"Housing Affordability Hits Worst Level in 3 Decades"},"content":{"rendered":"<p style=\"text-align: justify;\">Housing affordability in Canada has reached \u201cworrisome levels,\u201d as soaring prices and tighter market conditions continue to persist across the country.<\/p>\n<p style=\"text-align: justify;\">Robert Hogue, a senior economist with RBC Economics, said in a recent Canadian housing report that there have been \u201clarge departures from historical norms,\u201d which indicate that property prices are detached from the realities of local buyers.<\/p>\n<p style=\"text-align: justify;\">As of Q4-2021, RBC\u2019s aggregate affordability measure for Canada has hit its worst level in 31 years, growing 1.6 percentage points to 49.4%. This marks a near-record deterioration of 7.2 percentage points over the past year, which has only been exceeded once in 1990.<\/p>\n<p style=\"text-align: justify;\">\u201cRapid price escalation in the early months of 2022 has already raised the bar to impossible levels for many homebuyers,\u201d stated Hogue.<\/p>\n<p style=\"text-align: justify;\">\u201cAnd with the Bank of Canada now in the process of hiking interest rates materially\u2014we expect a total increase of at least 150 basis points in the coming year\u2014ownership costs look set to spiral even higher. Worst-ever affordability levels could well ensue, putting buyers in a precarious spot,\u201d he added.<\/p>\n<p style=\"text-align: justify;\"><strong>Market imbalances emerged during COVID-19<\/strong><\/p>\n<p style=\"text-align: justify;\">Hogue stated that the property price increases recorded during the COVID-19 pandemic have been \u201cnothing short of stunning,\u201d having exceeded 30 per cent growth nationwide.<\/p>\n<p style=\"text-align: justify;\">Changing home needs, strong incomes, increased investor participation and record-low interest rates contributed to the ramp up in buyer demand as administrative obstacles prevented a suitable supply response. As a result of these trends, a significant market imbalance emerged.<\/p>\n<p style=\"text-align: justify;\">In Q4-2021, Canadians paid a 17% premium over late-2019 valuations, \u201cwhich were already quite steep,\u201d according to Hogue. Halifax, Ottawa and Toronto saw higher premiums of 26%, 24% and 22%, respectively.<\/p>\n<p style=\"text-align: justify;\">\u201cWhether lofty valuations can be sustained will largely depend on how long demand-supply conditions remain ultra tight and market sentiment stays bullish,\u201d said Hogue, who added that a rapid increase in interest rates could bring on cooler demand and ease the market imbalance.<\/p>\n<p style=\"text-align: justify;\"><strong>Canadians now show greater sensitivity to rising rates<\/strong><\/p>\n<p style=\"text-align: justify;\">With extremely high home prices amplifying the impact on mortgage payments, Hogue stated that Canadian homebuyers are now more sensitive to interest rate changes than they were more than a decade ago.<\/p>\n<p style=\"text-align: justify;\">For instance, a one percentage-point hike in rates would currently increase payments by $315 a month \u2014 double than what it would be 10 years ago \u2014 on the average Canadian home price of $775,000.<\/p>\n<p style=\"text-align: justify;\">RBC projects that we\u2019ll see a 150 basis-point rise in rates from the Bank of Canada, which would raise RBC\u2019s Canadian composite affordability measure more than seven percentage points, further worsening affordability.<\/p>\n<p style=\"text-align: justify;\">\u201cWhile income gains will provide a partial offset, it\u2019s entirely possible RBC\u2019s measure could spike to all-time highs in the year ahead,\u201d said Hogue. \u201cA shock of this magnitude would severely stress homebuyers and exert significant downward pressure on demand.\u201d<\/p>\n<p style=\"text-align: justify;\">While all buyers will likely feel the effects of rising rates, those in the country\u2019s most competitive markets will feel it the most. In cities like Vancouver, Toronto and Victoria, where mortgage amounts exceed the national average by a long shot, interest rate fluctuations affect mortgage payments the most. Hogue anticipates that RBC\u2019s aggregate affordability measure could \u201ceasily surpass previous peaks in all three markets.\u201d<\/p>\n<p style=\"text-align: justify;\">\u201cBuyers in Montreal, Ottawa and, to a lesser extent, Halifax also face further material erosion of affordability,\u201d he said. \u201cMost of Atlantic Canada and the Prairies, on the other hand, are relatively less sensitive, containing downward pressure on demand.\u201d<\/p>\n<p style=\"text-align: justify;\">In light of rising rates, Hogue said that many homebuyers will shift their preferences, which may include looking for a more modest or different type of home, considering more affordable markets, asking family for financial support or opting for a lower mortgage rate.<\/p>\n<p style=\"text-align: justify;\"><a href=\"https:\/\/www.livabl.com\/2022\/03\/housing-market-grim-deterioration.html\" target=\"_blank\" rel=\"noopener\">Housing Affordability Sees Grim Outlook as Deterioration Hits Worst Level in Three Decades<\/a> by Michelle McNally | Livabl<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Housing affordability in Canada has reached \u201cworrisome levels,\u201d as soaring prices and tighter market conditions continue to persist across the country. Robert Hogue, a senior economist with RBC Economics, said &hellip; [<a href=\"https:\/\/www.roryc.ca\/blog\/2022\/04\/housing-affordability-hits-worst-level-in-3-decades\/\">read more<\/a>]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[],"class_list":["post-19708","post","type-post","status-publish","format-standard","hentry","category-real-estate"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Housing Affordability Hits Worst Level in 3 Decades &#8226; Rory C Real Estate | Oakwyn Realty<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.roryc.ca\/blog\/2022\/04\/housing-affordability-hits-worst-level-in-3-decades\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Housing Affordability Hits Worst Level in 3 Decades &#8226; Rory C Real Estate | Oakwyn Realty\" \/>\n<meta name=\"twitter:description\" content=\"Housing affordability in Canada has reached \u201cworrisome levels,\u201d as soaring prices and tighter market conditions continue to persist across the country. 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