Canadian Housing Affordability Reaches Worst Levels Since 1990

The cost of owning a home is increasingly becoming a financial burden for the average Canadian.

A recent report published by the Royal Bank of Canada on housing trends and affordability indicates that those dreaming of owning a home may have to ensure they have deep enough pockets, as being a home owner today is as financially unfeasible than any time since 1990.

The biggest degeneration in affordability was, unsurprisingly, in Ontario and British Columbia.

Despite efforts to curb the rapid price acceleration in those two provinces through policies such as the Fair Housing Plan implemented in April to taper the market in Toronto and a 15% percent tax on foreign buyers to cool down the purchasing frenzy by international speculators looking to park their money in Vancouver real estate, prices have resumed their climb upwards, after a relatively brief period of stabilization.

In addition to Vancouver, affordability in Victoria has also experienced significant erosion, seeing the second-largest decrease in affordability since the 2nd quarter of 2016.

In Alberta, there has been much more modest change. Affordability has more or less remained the same – the chief concerns in the province are the persistently high unemployment rate and implementing policies to spur economic growth.

In Saskatchewan and Manitoba, affordability also remained neutral, though there were some marginal improvements in places like Saskatoon, where buyers commanded more power, driving prices lower.

Quebec and the Atlantic provinces showed some signs of deterioration, though mostly in line with historical trends with no major deviation (some places did experience modest increases in affordability).

A major takeaway from the report is that markets in Ontario and British Columbia heavily skew the data, as increases or decreases in affordability were much less remarkable in the rest of Canada.

Rising interest rates could have serious implications for the overheated markets in Toronto and Vancouver.

The report indicates that there is good reason to believe the Bank of Canada is poised to increase the overnight rate several more times from now until the end of 2018 for a total increase of 100 basis points. While all markets would be affected by increasing rates, the effect would be felt most severely in the high-priced markets that some would refer to as “bubbles” on the verge of bursting.

Read the full report here.

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