Canada’s largest bank is warning that housing has never been less affordable. New data from RBC shows housing affordability is now the worst it has ever been as of Q4 2023. Income failed to keep up with mortgage payments, resulting in affordability erosion in every market they track. Forecast interest rate cuts are expected to make a slight improvement, but not much.
Canadian Housing Affordability Has Never Been Worse
Canadian housing affordability has never been worse, according to RBC. A median household would need to spend 63.5% of its income to carry the mortgage on a “typical” home in Q4 2023. That’s a 1.7 point increase from the previous quarter, and the largest share ever. For context, the peak of the 1990s bubble was 57% of income—almost affordable in contrast.
Buying A House In Canada Has Never Been Harder
Canadian ownership costs as a percentage of median household income.
Source: RBC.
Every market tracked saw affordability erode, warns the bank. The markets with the worst levels were Vancouver (106.3% of income), Toronto (84.8%), and Victoria (80.2%). These cities are notoriously expensive, but their long-term averages now resemble levels “affordable” cities are currently at.
The bank made special note of those historically affordable markets, now at their respective worst affordability levels ever. A median buyer needs to spend roughly half their income in Ottawa (49.9%), Montreal (53.3%), and Halifax (45.3%).
Canadian Mortgage Payments Rose Much Faster Than Prices Dropped
The bank attributes the erosion of affordability to mortgage payments. The maximum budget shrunk 22% since Q1 2022, but home prices only fell 1.8% over the same period, according to the bank. The average payment for a buyer would be roughly $3,990—more than double the average payment existing homeowners pay.
Monetary policy changes should reduce prices but they take about 18 to 24 months for the impact to be seen. As the impact of the first rate hikes are starting to take hold, the conversation around cutting rates has already begun. Consequently, the narrative of prices rising once again never died—it was only pushed to the backburner.
Canadian Housing Affordability To Improve, But Not Much
RBC expects affordability to start seeing improvements with rate cuts mid-year. Though don’t get too excited, they don’t see much improvement.
“Under our base case scenario, the share of an average household income needed to cover ownership costs would only fall to mid-2022 levels by 2025,” explains Robert Hogue, assistant chief economist at RBC.
Adding, “meaningfully restoring affordability will likely take years in many of Canada’s large markets. In this context, we expect the housing market’s recovery to be slow at first, before gaining momentum as interest rate cuts accumulate.”
In short, the bank sees Canadian housing affordability at the worst level ever… without much improvement on the horizon. Great.
