Posthaste: Affording a home in Canada has never been tougher, with one city in ‘full-blown crisis’

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The latest edition of the Royal Bank of Canada‘s housing affordability measures makes for some grim reading.

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According to the report, it has never been tougher to afford a home in Canada, and at least one city is in “full-blown crisis.”

Though it paused last summer, the Bank of Canada‘s “historic” hiking campaign continues to weigh on the housing market, with high interest rates pushing home ownership costs to new heights in the fourth quarter of 2023.

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A household now needs to spend a “staggering” 63.5 per cent of the median income to cover the cost of owning a home at the average market price, up from 61.8 per cent in the third quarter, says Robert Hogue, assistant chief economist at RBC.

Home prices nationally have fallen slightly, but the soaring cost of interest has more than made up for it.

RBC calculates that the monthly mortgage payment on the composite home valued at $796,300 increased by $125 or 3.3 per cent last quarter to $3,990. Meanwhile, home prices dipped just 0.5 per cent from the quarter before.

Housing affordability deteriorated in all the markets that RBC tracks, with Vancouver, Victoria and Toronto getting the worst of it. But Ottawa, Montreal and Halifax are also at or near the worst levels of affordability ever.

“It’s never been as expensive to own a home anywhere, anytime in Canada as it was in Vancouver in the fourth quarter, said Hogue, who says the city is in “full-blown crisis.”

Covering ownership costs here takes 106.4 per cent of the median income, meaning that buyers have to make a really high income or save or receive considerable wealth to put towards the purchase.

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This has narrowed the pool of buyers significantly and kept sales soft and prices flat, a situation that RBC sees continuing in the months ahead.

Toronto’s affordability also reached its worst levels in the fourth quarter at 84.8 per cent, keeping home sales at historically low levels.

Even Calgary, “Canada’s current housing hotspot,” is feeling the pressure. Home prices here are rising at the fastest pace in the country, eroding affordability to 48.3 per cent, the worst level since 2007.

A strong economy and surging population growth continues to drive the housing market, but the decreasing affordability could put a damper on activity if the trend continues, said Hogue.

Across the country, high interest rates are “seriously crimping” home hunters’ budgets, he said.

RBC estimates the extra costs have shrunk the home-buying budget for a household with a median income by 22 per cent since the first quarter of 2022, when the Bank of Canada began raising rates.

Over the same period home prices have fallen just 1.8 per cent.

“It’s no wonder homebuyer demand has cooled so much,” said Hogue. “The ability of many Canadians to get into the housing market has greatly diminished.”

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RBC expects the Bank of Canada will begin to cut its rates by the middle of the year, offering homebuyers some relief. Affordability could even start to improve earlier if long-term interest rates ease ahead of the central bank’s first cut and household incomes continue to grow, said Hogue.

However, the scope for improvement in the year ahead will be small compared to the “dramatic loss of affordability that occurred during the pandemic,” he said.

RBC predicts that the share of average household income needed to cover home ownership costs will only fall to mid-2022 levels by 2025.

“That would scarcely lower the bar for most potential buyers,” said Hogue.

“Meaningfully restoring affordability will likely take years in many of Canada’s large markets.”

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Canada’s labour market has thrown up a new twist just days before the Bank of Canada decides on interest rates April 10.

Data out Friday showed the unemployment rate rose to 6.1 per cent in March, the highest since January 2022. Except for the pandemic years, Canada hasn’t had a jobless rate above six per cent since 2017.

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The economy also lost 2,200 jobs, the first decline since July, while economists had been expecting a gain of 25,000 jobs and unemployment rate of 5.9 per cent.

“The cracks that had been emerging within the Canadian labour market suddenly got a lot wider,” Andrew Grantham, economist at Canadian Imperial Bank of Commerce, said in a note on the data.

“While markets had been pushing back expectations for a first Bank of Canada interest rate cut following strong GDP data to start the year, today’s labour force data should see them pulling those expectations forward again closer in line to our expectation for a first move in June.”

• The House of Commons resumes sitting this week ahead of the federal budget on April 16. The Liberal government has already made several budget-related housing announcements in recent days.
• Greater Vancouver Board of Trade hosts a workshop with BC Securities Commission on ‘Mining Disclosure in British Columbia: What you need to know.’

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A testamentary trust is established by a person at their death to effectively exert control over their assets. But certified financial planner Allan Norman says they aren’t always the most efficient way of distributing assets. Get the answer at FP Investor

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you wondering how to make ends meet? Drop us a line at [email protected] with your contact info and the general gist of your problem and we’ll try to find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course). If you have a simpler question, the crack team at FP Answers led by Julie Cazzin or one of our columnists can give it a shot.

McLister on Mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Read them here 

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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