According to the Bank of Canada, housing affordability hit its worst level in more than four decades last quarter, since housing prices and mortgage rates have increased.
The significant decline comes as Ottawa pushes a new housing strategy that looks to revamp war-time homebuilding efforts in a bid to restore affordability in the market.
The Bank of Canada’s housing affordability index tracks Canadians’ typical mortgage payments and utility costs as a part of their income. The central bank found that in the third quarter, the index reached its highest level, meaning the worst degree of affordability, since the second quarter of 1982.
Recently BMO chief economist Doug Porter said in a note to clients, that the growth in long-term interest rates over the summer and early fall compounded with the increase in home prices in the market, dealing a double-whammy to landowners and future buyers.
A National Bank of Canada report from last month also showed a significant decline in housing affordability last quarter.
The bank’s housing affordability monitor which was released on the 1st of November noted that Q3 marked a step back from three consecutive quarters of improvement in the index, which removed nearly two-thirds of the gains seen in that time.
According to the National Bank, high demand from population growth and a chronic lack of supply in the housing market offset gains in household income last quarter.
Recently, the federal government confirmed a Global News report which Ottawa plans to reintroduce a catalogue of pre-approved home plans for builders to rapidly increase the available housing stock in the country. It mimics a similar effort from Canada, post-Second World War, to scale up the number of homes available for returning veterans.
The affordability situation could definitely get worse in the current quarter, National Bank added, given a steady trend upwards in mortgage rates in October.
National Bank report states that, if interest rates hold at their present level, it would only take a home price increase of two per cent in the fourth quarter to beat the worst level of affordability in a generation.
Since that time, though, the bond market has weakened with declining yields on certain long-term bonds. These bond yields have a standard for fixed-rate loans, with easing here eventually reflected in offers on the mortgage market.
Porter realized that the last three times in Canada faced spikes in housing unaffordability, the early 1980s and 1990s, and 2007-08, the economy fell into recession shortly after, Canada’s economy contracted in the third quarter of the year, with some major banks predicting a slight recession to hit in early 2024. Porter states that, they expect the economy to struggle to grow in 2024.
