A new report by RBC Economics suggests homeownership in Canada became slightly more affordable in the first quarter of this year.
August de Richelieu
Broad-based declines in home prices and the Bank of Canada’s rate hike pause helped lower ownership costs in the first quarter of 2023. RBC’s aggregate affordability measure for Canada fell for the first time in almost three years, edging 1.6 percentage points lower to 59.5 per cent.
The RBC Housing Affordability Measures show the proportion of median pre-tax household income that would be required to cover mortgage payments (principal and interest), property taxes, and utilities based on the benchmark market price.
“Buyers in all markets we track enjoyed some relief. Vancouver, Victoria and Toronto recorded the most significant declines in their affordability measure,” said the report.
“Any relief in the first quarter is small comfort for buyers in Vancouver, Toronto and surrounding areas who continue to face sky-high costs.
“Stronger than expected activity this spring and the Bank of Canada resuming its hiking campaign in June will likely limit the extent to which affordability can improve over the coming quarters. Our base-case macroeconomic and housing market scenarios imply a decline of approximately five percentage points in the national affordability measure over the coming year. This would reverse only one quarter of the record 20-point increase since the middle of 2020.”
“But the Bank of Canada’s (now temporary) pause following January’s rate announcement finally gave homebuyers some breathing room. The policy shift helped stabilize mortgage rates, allowing the price correction to lower ownership costs associated with a home purchase in the first quarter of 2023,” it said.
“In the two previous quarters, rapidly escalating mortgage rates overwhelmed any benefits arising from declining prices. The former added an average 4.3 percentage points to RBC’s national aggregate measure, eclipsing the average 2.1 percentage points the latter subtracted. (A decrease in the measure represents a gain in affordability.)
“The first quarter improvement in affordability occurred despite prices falling at less than half the 3.7 per cent average rate over the second half of 2022. It’s just that this time flat mortgage rates had little impact on the measure.”
Mario Toneguzzi
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