In July, Ratehub.ca calculated the minimum annual income required to buy a home in Canada’s major cities based on March and June 2022 real estate data. The report illustrated how changing mortgage rates, stress test rates and real estate prices impacted the income needed to buy a home. We decided to take another look at housing affordability in Canada and see if anything had changed over the summer.
Falling house prices have improved home affordability
Between June to August 2022, home affordability has improved in all 10 cities we looked at (however, it is still less affordable now compared to March 2022). "Homes in every city we looked at are slightly easier to afford than they were two months ago. This is because rates have remained unchanged, while home prices have softened," says James Laird, Co-CEO of Ratehub.ca and President of Canwise mortgage lender. Laird emphasized that if rate hikes were to come to an end soon and home prices continue to drop, affordability would keep improving. However, should we see additional rate hikes and a stabilization of home prices, then affordability will start to decrease again.
How much income do you need to afford a home in Canada?
Using March, June and August 2022 real estate data, Ratehub.ca has calculated the minimum annual income required to buy a home in Canada’s major cities. The chart below illustrates how changing mortgage rates, stress test rates and real estate prices have impacted the income needed to buy a home.
Some key takeaways from our research include:
- Homebuyers in all 10 cities we examined need less income to afford a home in August than they did in June 2022.
- Toronto witnessed the biggest change to affordability, with $12,550 less income needed to afford a home between June to August 2022.
Even as home prices are decreasing across the country, mortgage rates have been steadily rising in response to the Bank of Canada's rate hikes over the course of this year. Although significant drops in home prices have now managed to offset the rise in rates, leading to somewhat improved affordability, it remains crucial to shop around to get the best mortgage rate available.