Canadian Housing Affordability Declining at a Rapid Pace

Home affordability in the Canadian housing market is on a fast decline as home prices continue to escalate with no measures implemented by several provincial governments having long-term effects. Although the home affordability rate during the first quarter of the year became tighter, reports from Desjardins indicates that home buyers in markets such as Toronto and Vancouver are expected to see prices stabilize.

Affordability on the national level has declined by 3% from last year during the same period. This observation was made by the Quebec-based association of credit unions’ affordability index on 20 housing markets.

Desjardins does not only take into consideration home prices. It also takes into consideration the rate of the average household income and compares it to the average income needed for an individual to make a down payment in on an average home in a particular housing market.

Housing affordability has been on the decline but in some real estate markets, it has been deteriorating at a faster pace and Ontario is just one of such areas. The city recorded the sharpest provincial affordability decline with the ratio dropping by 6% in the first quarter in 2017.

Taking a look on the national level, the census metro areas of Windsor and Kitchener-Cambridge-Waterloo recorded the greater decline in home affordability at 11.9% and 9.4% respectively.

As many prospective buyers have been left out of the housing market as a result of increasing prices, many have been searching in other affordable markets which in turn have led to increase in such areas and this has also been reflective in the affordability level across southern Ontario.

Last year, during the fourth quarter affordability the Toronto market deteriorated by 7.2% compared to the first quarter in 2016 with the city being the leading Canadian housing market.

Home prices are now 30% higher than they used to be in 1996 but Desjardins Economist Chantal Routhier stated that this trend is showing no signs of improving.

He went on to add that “the 15% tax on foreign buyers will positively influence the market.”

With affordability increasingly being a barrier for many buyers in the province, the Ontario government in April introduced a foreign buyers’ tax similar to the one in Vancouver to make housing affordable to all.

Routhier went on to state that Vancouver’s housing market has become more affordable following the implementation of the tax last year. Evidently, home affordability in the area has improved by 2.3% during the first quarter.

With both provinces having a similar tax there are suggestions that other real estate markets such as Montreal will gain the attention of foreign investors which will also affect affordability in the area.

But presently, Montreal has a very low number of foreign buyers which is around 1.1% and for the past few months there has been very little involvement of foreign buyers in the market.