Living for 30 years has never been so unaffordable

According to RBC, housing affordability continues to deteriorate across the country.

Posted at 7:00 am

Andre Dubuc

Andre Dubuc
The press

The cost of owning a home now covers 54% of median household income at the end of Q1 2022. This is unprecedented in a generation, according to a report by RBC Bank published on Thursday.

The RBC affordability measure indicates the proportion of median pre-tax household income that would be needed to cover mortgage payments (principal and interest), property taxes and utilities, based on the benchmark market price.

Affordability has deteriorated in all markets, but the situation has become extreme in Vancouver and the Toronto area. Southwest Ontario and the interior lowlands of southern British Columbia fare not much better.

The situation will only get worse, warns Robert Hogue, deputy chief economist at RBC. “The ‘aggressive’ campaign to raise interest rates in Canada will continue to push up short-term housing costs and push the RBC National Affordability Index towards its worst-ever levels.” However, we believe that the ongoing price correction will eventually bring some relief to buyers. Property values, already falling, are expected to fall more than 10% over the next year. »

In Quebec, RBC forecasts a 7% fall in house prices over the next year. Desjardins preceded it by mentioning a 12% price drop earlier this month. However, the Association of Construction and Housing Professionals of Quebec doubts this. “I think 12% is a strong downward scenario because we assume such a strong imbalance between supply and demand,” says Paul Cardinal, the association’s economist, in an interview with The press.

Rising interest rates dramatically increase homeowners’ monthly payments. For example, “a 1 percentage point increase increases mortgage payments by more than $600 per month in Vancouver, $554 in Toronto, and $481 in Victoria.”

In Montreal, “the RBC composite index rose for the sixth consecutive quarter to 43.2%, its highest level in 14 years. In 2022 so far, housing transactions have fallen by almost 9%. In fact, sellers kept prices under control until this spring. Since then, a tide of homes coming up for sale has slowed down recently [le manque d’offre] ‘ we read in the report.

Rising borrowing costs are making housing unaffordable, as are rising real estate prices. “A 1 percentage point increase in interest rates pushes the composite index higher than the national average (5.5 percentage points) in Vancouver (8.8 percentage points), Toronto (7.8 percentage points) and Victoria (6.4 percentage points). Fortunately, Quebec’s affordability deterioration as a result of a rate hike is below the Canadian average.

RBC affordability measure

Percentage of median median income used to cover the cost of owning a property in the first quarter of 2022

  • Vancouver: 82%
  • Toronto: 74.9%
  • Ottawa: 43.6%
  • Montreal: 43.2%
  • Quebec City: 26.2%
  • Canada: 54%

Source: RBC

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