First National Financial LP

Residential Market Commentary - Affordability woes

  • First National Financial LP

Housing affordability has deteriorated for the third straight quarter despite stable interest rates and decent income growth. 

The latest Housing Affordability Monitor indicates it now takes 46.5% of income to service a mortgage in this country.  By the measures used in the report affordability declined by nearly 2 points in the third quarter, following a 3.2 point deterioration in Q2.

Almost all of that is the result of higher home prices.  Numbers from the Canadian Real Estate Association show a 4.6% jump in the third quarter, with a 19% increase year-over-year.

Looking forward, the report does not see any improvement for the foreseeable future.  It points to fixed mortgage rates that have increased by nearly 25 basis points this month and it speculates about on-going rate increases in the coming quarters.

The Bank of Canada has been clear that it is prepared to start increasing rates in the “middle quarters” of 2022.  The report hypothesizes that a 100 basis-point increase in interest rates would result in a 12% decrease in buying power.

Looming interest rate increases appear to have triggered a surge in the fear-of-missing-out among house hunters.  As a result, there has been a spike in the number of buyers who are looking for pre-approvals and rate-holds.

Given the increase in the 5-year fixed rate between October and November, the average homebuyer is looking at about $112 added to their monthly payment.  Over five years, that adds up to more than $10,500.