• Surging interest rates drive ownership costs to record-high levels: The Bank of Canada’s rate hiking campaign since March has added hundreds of dollars to mortgage payments that come with a home purchase. This, along with the jump in property values during the pandemic have made it more difficult than ever to become a homeowner in Canada. RBC’s national aggregate affordability measure reached 60% in the second quarter, surpassing the previous worst-ever point (57%) in 1990.
  • Affordability worsened everywhere in Canada: The deterioration over the past year has been off the charts in most markets with only parts of the Prairies and Quebec having experienced deeper erosion in the past.
  • Ontario, BC buyers extremely challenged: Conditions are still manageable in the Prairies and most of Atlantic Canada and Quebec though.
  • Home price declines to eventually bring relief to buyers: The sharp housing market correction that began this spring is rolling back some of the spectacular price gains made during the pandemic. We expect benchmark prices to fall 14% nationwide by next spring—more so in Ontario and BC. This should help lower ownership costs next year. But the likelihood of further rate hikes from the Bank of Canada is poised to intensify affordability pressures before then.

Canada’s housing markets make history—but in a bad way

The spike in interest rates since March—the policy rate is up 300 basis points to date with another 75 basis points on the way by year-end in our opinion—is raising ownership costs in every corner of the country. Most affected are expensive markets where affordability was already stretched before the Bank of Canada launched its attack on decades-high inflation.

So far the impact has been historic. RBC’s aggregate affordability measure was thrusted into record-high territory nationally (to 60.0%) and in Victoria (67.6%), Vancouver (90.2%) and Toronto (83.0%) in the second quarter of 2022. Smaller markets in Ontario (including Hamilton, London, St. Catharines, Kitchener-Waterloo-Cambridge and Windsor) and British Columbia (including Kelowna) also reached their worst affordability levels ever based on the ratio of mortgage carrying costs to household income. Ottawa (RBC aggregate affordability measure of 48.5%) and Halifax (41.3%) hit their previous high-water mark. While the situation isn’t as dire in other regions of the country—in fact, many markets in Alberta and Saskatchewan, and some in Atlantic Canada still look reasonably affordable—the rapidly deteriorating trend is universal. A rise in RBC’s measure represents a loss of affordability.

Housing market turns down

Unsurprisingly, soaring ownership costs turned Canada’s housing market on its head. The frenzy that drove resale activity and prices to incredible heights at the start of this year is gone. Many buyers have been forced to the sidelines either because they no longer qualify for a mortgage or have seen their purchasing budget drastically reduced. Home resales have plummeted more than 30% since February and prices are now softening, especially in Ontario and parts of British Columbia.

Rising rates still the focus for now

The impact of higher mortgage rates has yet to fully run its course. We expect increases to date, as well as further upcoming Bank of Canada hikes will intensify upward pressure on ownership costs over the second half of this year. Buying a typical home in Canada cost an additional $380 per month in the second quarter (or 5.9% of household income), of which $230 (3.5 percentage points) was due to higher mortgage rates. Buyers in Vancouver (up 8.1 percentage points as a share of income), Toronto (up 8.1 ppts), Victoria (up 6.7 ppts) and Ottawa and Halifax (both up 4.8 ppts) saw the biggest rises. Ownership costs in the first three markets (and their surrounding areas) are the most sensitive to interest rates and at risk of climbing further in the near term.

Softening prices to headline the next phase

The good news is the widespread market downturn is setting the stage for some affordability improvement down the road. We expect the softening in prices will continue and spread until a bottom is reached around spring time next year. We think this will lower ownership costs once interest rates stabilize. Our view is unaffordability will peak at the end of this year—though the timing is poised to vary market by market. Growing household income will partly drive the improvement that will follow. It will likely take years to fully reversed the tremendous deterioration that took place since 2021.


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This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.