Bank of Canada Says Housing Is Still Cheap

While home prices have been increasing in Toronto and Vancouver, housing in other areas may still be affordable, at least by one measure. The Bank of Canada (BoC) Housing Affordability Index shows that the cost of housing across Canada is below historic norms.

The Indicator Reads Below The Average

The Housing Affordability Index is how the BoC measures affordability of housing in Canada. It measures the ratio of disposable income that goes towards paying for shelter. Right now it sits at 0.346, which is 1.14% cheaper than the historic average. A big reminder that the majority of the country isn’t playing the speculation game many Canadians have been over the past year.

Historic Declines of Housing Affordability In Canada

The highest peak ever recorded in Canada was in the third quarter of 1981, when the ratio hit a whopping 0.629 – 81% higher than it sits today. The second quarter of 1990 also had a pretty steep ratio of 0.53. More recently the peak in 2007 hit 0.391, 13% higher than today’s reading. So believe it or not, the BoC’s indicator thinks it can get a lot worse.

Historic Increases of Housing Affordability In Canada

In the third quarter of 1985, the affordability index read 0.32 – 7.5% lower than today.  It hit an all-time low in the first quarter of 2002, when the ratio fell to 0.265. More recently, just after the Great Recession it fell to a ratio of 0.29. Currently we’re about half way from the lowest point after the Great Recession, to the peak achieved in the fourth quarter of 2007. It was a pretty quick climb during that period, which may explain why prices feel so aggressively high.