Canadian real estate is disconnecting from reality at a breakneck speed. RBC updated its affordability index for Q4 2021, measuring the share of income needed to buy a home. Housing affordability across most of the country is now out of reach for most households. Buying a home is nearly an “impossible” feat, according to one of the largest lenders in the country. This sounds like great news.
Canadian Home Ownership Costs Pushed To An “Extreme”
The bank uses the share of income a household needs to determine affordability. More precisely, the share of income a median household needs to service a mortgage on a typical home. A home in Canada requires 49.4% of income as of Q4 2021, up 1.6 points from the previous quarter. Over the past year, the share climbed 7.2 points higher — the second fastest annual jump ever.
RBC Housing Affordability Measure
Ownership costs as % of median household income.
Source: RBC.
“The deterioration over the past year is a near-record 7.2 percentage points—exceeded only once in 1990,” said RBC.
Toronto and Vancouver Real Estate Are Approaching Records
Remember, those are home prices across Canada — it’s much worse if you’re looking at Toronto and Vancouver. A median household in Toronto needs to spend 68.6% of their income in Q4 2021, up 10.8 points from a year before. According to the bank, the jump in servicing costs is second only to one made in 1990.
Vancouver makes Toronto look like a deal at this point, with RBC saying it’s the “worst” in Canada. A median household needs to spend 73.9% of their income to carry a mortgage for a typical home as of Q4 2021. This is a jump of 9.9 points from the previous year, and they expect it to get worse in the near term.
“Soaring prices are crushing affordability in those markets, as well as others in southern Ontario,” says RBC. “The deteriorating trend, however, is widespread with the RBC measure up in all markets we track in the past 12 months.”
Canadian Real Estate Outlook Is “Grim,” and “Impossible” To Buy
Preliminary data for the current quarter shows things have deteriorated even further. Home prices advanced nearly half the household median income per month so far. The bank argues this raised the bar to “impossible” levels, and they see it getting worse in the short-term.
“The outlook for affordability is grim: Rapid price escalation in the early months of 2022 has already raised the bar to impossible levels for many homebuyers,” said the bank. “And with the Bank of Canada now in the process of hiking interest rates materially—we expect a total increase of at least 150 basis points in the coming year—ownership costs look set to spiral even higher.”
Rising mortgage rates are expected to push carrying costs to the “worst-ever affordability.” The bank warns this would put buyers in a precarious spot, and reduce demand. Though at near record demand stimulated by low rates, a little less demand might be a good thing.
“You’ll own nothing
and you will love it”
I hear real estate agents who are laughing at people rushing in, buying with no property inspection, over asking offers, and others horrified by it as much as they love raking it in as people get in over their heads. Young people finding a house has asbestos but didn’t get a property check, no money to fix it. People buying a house that’s not much more than a shack, I wouldn’t even want for free, for 1.5mill. The more it goes up, the harder the fall will be. But of course Trudy will do anything to protect the real estate market, it’s the number one ‘business’ Canada has. What a sham.
Inflation, labor unrest , wage stagnation, less consumerism , unemployment , taxation, household debt and governmental debt Will do a better job of lowering house prices
Yup ; now there is a real set of problems that is hanging over the masses world wide .
Recession or even worse Depression.
My Grandfather in the 30’s took one of his larger pigs downtown and tried to sell it on the streets of Vernon BC for $2 dollars and no buyers . Finally a man came up to him and said nice pig and great price and it would sure help to feed the family but I don’t even have a dollar to pay for it .
Obviously somebody is buying. But who? These news articles seem like click bait as this is never discussed. Who? How? The realtors have the data of these buyers and should make this available to the government. The banks that are lending at these extreme valuations have the data, why don’t they share this. The BoC and the CMHC who insure these mortgages have the data, why don t they share the info instead of voting themselves bonuses. Who and how and why need to be answered.
Canada is not some nation made up of unicorns and fairy dust. So how can everyone be living in million dollar osb glued boxes? Money doesn’t grow on trees eventhough the BoC seems to use their magic wand to produce this money. So unless our natural resources are being sold off before they even exit the ground, how can every house in this country be so expensive? Is it Justin-flation??
They actually discuss this all of the time who’s buying. I can only take it being repeated once per day.
https://betterdwelling.com/canada-goes-all-in-on-real-estate-with-excess-home-sales-hitting-6-of-gdp-bmo/
There are ways to bring down prices but the government doesn’t seem to want to do it or care.
We’ve got to tax the flippers severely. At least 75% of any profit made or better yet ; allow no profit.
Clamp down on money launderers. These criminals don’t care how much they make to get clean money.
Don’t allow investors any write -offs on their properties.
Charge vacant homes 25% per year if left vacant.
Do not allow non- residents to buy in Canada.
That will do it!
Indeed, those things will help, but we need to take it a step farther, the price of a house should never be allowed to never be more expensive than the cost of building it and its contents on the day it’s listed.
This would enable even the poorest to have a decent home.
It’s time to level the playing field. Where I live, in the utter remote outport NFLD, such is the case.
People live here because they can have a home, and call it their own, those large homes with no back yards on the mainland makes slaves of the poor. I know first hand ! It’s time to rethink and reevaluate our priorities, like really get back to living and spending time with family and friends instead of everybody in the household working just to keep a roof over the head. It’s pretty twisted if you ask me. Look at the birds and animals and learn something from them.
Yes surely it would but as a country what else do we have to sell to keep the economy going.
if people don’t have to pay so much to rent or buy they can spend more on everything else. Many others will be able to get into the market which then creates future wealth and a happier population.
Price decreases may also stop people from moving out of the country which is happening now. In fact, more people left Canada last year than people immigrating.
We won’t be able to attract the immigrants we need if life is unaffordable in Canada which it now is for everyone except the well off.
Perhaps soon I will have to immigrate from this grossly unfair and expensive country! Nevermind the broken culture and lack of identity concerning Canada…
I don’t understand how making it hard for regular people to get in the market improves affordability. It doesn’t curb the demand for housing as would be buyers are simply displaced onto the rental market making it even more lucrative for investors who already have the capital advantage over everyone else.
Time for investors to quit the housing market