In the first quarter of 2024, Canada’s housing market saw a significant improvement in affordability, according to the National Bank of Canada’s Housing Affordability Monitor. This improvement was the largest since 2019, with mortgage payments as a percentage of income dropping by 3.1 percentage points to 58.9%. This improvement was seen across all 10 of the largest markets tracked by the bank. The biggest improvements were seen in Toronto, Vancouver, and Victoria, thanks to drops in home prices in the quarter. In Toronto, mortgage payments as a percentage of income dropped 5.7 percentage points for non-condo properties and 2.7 percentage points for condos. In Vancouver, the drops were even steeper at 8.9 points for non-condo properties and 3.8 points for condos.
The boost in housing affordability in Canada was driven by a combination of factors, including softening home prices, rising median incomes, and falling mortgage rates. While the Bank of Canada has kept its policy rate at 5.0%, market expectations for rate cuts helped push down the benchmark five-year mortgage rate by 32 basis points in the first quarter. Despite the improvement, the authors of the report note that the mortgage cost as a proportion of income is still not at an accessible level. In Vancouver, for example, the proportion of median income needed to cover payments on the median non-condo property remains over 100%.
Looking ahead, the report does not show much optimism for the rest of the year. While falling interest rates later in 2024 may result in somewhat cheaper financing costs for new homebuyers in the second half of the year, robust population growth is expected to keep home prices resilient. Canada’s supply gaps will continue to put upward pressure on prices, with the ratio of the working-age population to housing starts at its worst levels in over 40 years. The authors of the report predict that price dynamics for both purchases and rents will remain skewed to the upside due to the current acute housing shortage.
In conclusion, the first quarter of 2024 saw a significant improvement in housing affordability in Canada, with mortgage payments as a percentage of income dropping to the lowest level since 2019. This improvement was driven by a combination of factors including softening home prices, rising incomes, and falling mortgage rates. However, despite the improvement, affordability levels are still not at an accessible level, particularly in cities like Vancouver where the proportion of median income needed to cover housing costs remains over 100%. Looking ahead, the report predicts that falling interest rates later in the year will lead to somewhat cheaper financing costs for new homebuyers, but robust population growth and supply gaps will continue to put upward pressure on prices, keeping them resilient.
