Financial News

Posthaste: How Canadians are paying for the pandemic’s gravity-defying housing market

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Good Morning!

The pandemic housing market has defied gravity — and Canadians are paying for it.

Housing affordability in the first quarter of this year saw its worst decline since 2018, and its first fall in four quarters, according to the National Bank of Canada’s housing affordability monitor.

It now takes a representative Canadian household 63 months (5.25 years) to save for a down payment on a dwelling, based on a 10% savings rate, said National.

This varies from market to market, of course. In Toronto, for example, where the median home price crossed $1 million in the first quarter, it now takes 278 months (23 years) to save up for a down payment. In Vancouver, where the price of a representative home is $1,381,274 and you need an income of $237,201 to afford it, you would have to save for 389 months (32.4 years) just for the down payment.

All 10 markets in the study saw affordability decline for non-condo housing, an event that hasn’t happened since the third quarter of 2017. National said so far condo affordability remains unaffected, but this “may not be true for long.”

Victoria saw the worst decline in affordability, posting the highest price hikes next to Hamilton. Prices rose 5.3% overall, 5.8% for non-condos and 2.6% for condos quarter over quarter. Mortgage payments here now take up 60% of the median income, making it second only to Vancouver, which takes 78% for a non-condo home.

Hamilton came next, with a 6.9% gain in prices. Mortgage payments here now take up 38.9% of income, above the average of the past 20 years in this city.

Ottawa-Gatineau rounds out the top three for the highest price increases, with both condos, up 2.2%, and non-condos, up 4.3%. Mortgage payments now take up 32% of income for a non-condo home.

They are followed by Toronto, Montreal, Vancouver, Quebec, Calgary and Edmonton, in order of the severity of the decline in affordability.

But there are signs this may be changing. The torrid pace of home sales that has alarmed policy makers during the pandemic appears to be cooling, according to the most recent figures from Canada’s two hottest markets.

The number of properties changing hands in Toronto declined 20% in April on an annualized basis from the month before, shows data released today by the Toronto Regional Real Estate Board and the average price for a home fell 3.6% to $1.05 million. Both were the biggest drops since April 2020, the first full month of the pandemic, Bloomberg reports. Almost 10,800 homes changed hands though — a record for the month of April.

Vancouver, where sales fell 14% from March, is seeing something similar, according to the Real Estate Board of Greater Vancouver.

“Although it remains very competitive and challenging for buyers, April could be the turning point in this historic market,” said Larry Anderson, president of the Fraser Valley Real Estate Board. “In the last couple of weeks, we have seen evidence of a change in pace. In general, we’re seeing fewer multiple offers, fewer subject‐free offers, and homes over‐priced are starting to sit longer. These are positive signs that the market is responding to near‐record levels of new inventory.”

National says mortgage rates have risen 35 basis points since all-time lows in February, a third of their way back to pre-pandemic levels. This and rising home prices could lead to a softening in demand, but market indicators still suggest a seller’s market in the short-term. And that could mean even more deterioration in affordability.

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