Combined with the dizzying price increases on the residential real estate market, the current rapid increase in the Bank of Canada’s interest rate makes the dream of owning your own home increasingly unattainable.
Over the past 12 months, economists with the National Bank’s Financial Markets Division say the deterioration in housing affordability in Canada has been the most significant in 40 years.
The base rate has already reached 1.5% from 0.25% at the beginning of the year. And the Bank of Canada is suggesting it may rise to 3.0%.
Specifically, this means that all borrowing rates, from mortgages to personal loans, including auto loans, will rise by as much, or nearly 275 basis points (2.75%).
For your information, if such an increase (+2.75%) occurs, it will result in a significant increase in the mortgage bill. For a 5-year mortgage amortized over 25 years, you’d have to pay about $148 more per month for each $100,000 mortgage, or $1,776 over a year.
On a $300,000 mortgage, the rate hike would increase the mortgage bill from $1,343 a month to $1,787, an increase of $444. This means an additional cost of $5,328 over a year.
In the case of a $500,000 mortgage, the monthly payments would go from $2,240 to $2,980, or $740 more per month, or $8,880 over a year.
THE $112,220 QUESTION
In their most recent study of “Housing Affordability” in Canada, National Bank analysts Matthieu Arseneau, Kyle Dahms and Alexandra Ducharme calculate that the “eligibility threshold” of income required to access single-family homes is currently 112,220 in the greater Montreal area USD lies.
With such an income, a household has the financial capacity to purchase a property whose current price is equivalent to the representative price of such an apartment in the greater Montreal area, ie approximately $553,000.
An income of $112,220 is still $40,299 more than the median Montreal-area household income of $71,921. We’re talking about an income that is 56% higher than the median household income in Montreal.
There is a consensus that the pool of young households looking to purchase a first family home and earn $112,220 in the process must be rather limited.
When buying a house for the first time, young households have to resort to condominiums, which are significantly cheaper than single-family houses.
In the metropolitan area, the average condo price is currently around $383,000. The National Bank’s Financial Markets analysts estimate the qualifying income required to purchase a condo of that value at $78,182.
Here we are approaching approximately $6,261 of the median salary ($71,921) for households in Montreal. This suggests that the pool of first-time condo buyers is likely to be quite large. At least for now.
When we compare ourselves, we comfort each other
Despite the decline in real estate accessibility in the metropolitan area, the fact remains that the Montreal region is still much more affordable than many other major metropolitan areas in Canada.
According to the study by specialists from the National Bank, the required annual eligible income for the purchase of a non-condominium property (single-family home or equivalent) is in the following metropolitan areas: