A recent report by Ratehub.ca indicates that the income needed to buy a home in most major cities in Canada decreased last month due to a combination of easing home prices and drops in interest rates. In August, 12 out of 13 cities included in the survey saw a decline in the minimum income required to afford the average home. The most significant improvements were observed in expensive housing markets such as Toronto, Victoria, and Vancouver. Toronto, for the second consecutive month, led the way in affordability improvements, with the minimum annual income needed to afford the average home dropping to $204,100 in August, down nearly $5,000 from July. This decrease was attributed to a decline in the average home price by over $15,000 month to month, driven by slow sales and a surplus of supply, particularly in the condo market.
Even in markets where home prices appreciated in August, a reduction in interest rates helped to lower the barrier to home affordability. The average five-year fixed mortgage rate in August was 5.16%, down from 5.29% in July. The exception to the overall trend was St. John’s, Newfoundland and Labrador, where income requirements increased in August due to a $4,900 rise in the average home price, resulting in only a $160 increase in the annual income needed. National Bank of Canada attributes the downward trend in mortgage rates nationally to the Bank of Canada’s interest rate easing cycle, with three rate cuts since June. The bank’s housing affordability monitor predicts that falling interest rates will drive increased affordability for homeowners in the upcoming months. However, despite two consecutive quarters of improvements, affordability has not yet returned to pre-pandemic levels.
While the decrease in interest rates has helped improve home affordability in Canada, there are still challenges that need to be addressed. National Bank of Canada’s economists caution that the housing market still has room for improvement in terms of affordability. The impacts of the COVID-19 pandemic continue to affect the economy, and efforts are being made to stimulate the housing market to make homeownership more accessible for Canadians. The Bank of Canada’s monetary policy actions, including interest rate cuts, have played a significant role in making homes more affordable for potential buyers. However, it is important to note that despite the recent improvements, affordability levels have not fully recovered from the impact of the pandemic and further measures may be needed to address ongoing challenges in the housing market.
Overall, the latest report from Ratehub.ca highlights positive trends in the Canadian housing market, with reductions in the income required to purchase a home in several major cities. The combination of easing home prices and lower interest rates has contributed to increased affordability for potential homebuyers. While challenges persist, such as fluctuating home prices and economic uncertainty, efforts are being made at both the national and provincial levels to stabilize the housing market and improve affordability. By monitoring these trends and taking appropriate measures, policymakers and industry stakeholders can work towards ensuring that homeownership remains accessible for Canadians in the future.
