It appears any recent easing in home affordability this summer was short-lived. Following the Bank of Canada’s return to its hiking cycle on June 7th (and subsequent spike in the bond market), home-buying conditions have tightened once again, due to a tougher mortgage stress test and overall higher borrowing costs.
New calculations from Ratehub.ca have found that affordability conditions worsened across 10 major cities over the course of the month; the study, which compares month-over-month national real estate data, factors in the minimum income required to purchase an average home in each market, based on changes in mortgage rates, stress test rates and real estate prices.
Mortgage rates of all types increased over the course of the month; variable rates absorbed a 0.25% uptick in line with the central bank’s increase to Canada’s Prime rate, which rose from 6.7% to 6.95%. Fixed mortgage rates also surged in response to fluctuations in the bond market, with five-year government bonds hitting the 3.8% range. That was felt immediately in the national real estate market, as the monthly pace of sales chilled to just 1.5%, according to the Canadian Real Estate Association.
In fact, the impact of rising mortgage rates was enough to offset a decline in the average home price in four of the cities included in the study.
“In the 10 cities we looked at, average home prices were up in six cities and down in four cities,” said James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender.
“Mortgage rates increased from May to June, so much so that affordability was down in all 10 cities, including the four cities where home prices were lower.”
According to the study:
- Home affordability has worsened in all 10 cities
- Vancouver saw the biggest increase month over month, with $8,850 more income required due to an average home price increase of $15,000, the largest monthly increase of all the cities
- Hamilton saw the biggest home price decrease month over month (-$4,000), but despite this, home affordability still worsened due to higher stress test and mortgage rates
Vancouver experiences greatest decline in affordability
Long recognized as Canada’s most expensive housing market, Vancouver experienced the greatest decline in affordability, as average home values rose in June to $1,203,000. Combined with an increased stress test rate of 7.72%, the required income to purchase a home in the city rose by nearly $9,000 to $235,650.
“Vancouver saw the biggest increase in home values month over month at $15,000. This combined with higher rates means that $8,850 in additional income is required, which is the largest increase of the 10 cities we looked at,” says Laird.
That was followed by Toronto, which saw the average home price rise by $6,900 on a monthly basis, pushing the required income level up by $7,200; Torontonians now need to earn an income of $229,800 to buy the average-priced home in the city.
Coming in third was Victoria, where the average home price increased by $6,500, requiring homebuyers to shell out $5,700 more, totalling an income of $177,300.
Affordability conditions eroded the least in Winnipeg, Montreal, and Halifax, where required incomes all rose by less than $3,000.
As has been the long-term trend, the City of Hamilton saw average home prices decline by the largest margin, to an average of $873,100 – but it wasn’t enough to move the dial on affordability.
“Hamilton saw the biggest home price decrease month over month, but despite this home affordability still worsened due to higher stress test and mortgage rates,” said Laird.