Stalled home values, rising incomes and falling mortgage rates continue to deliver improvements in housing affordability in Canada, according to a report released Wednesday.
And yet, National Bank of Canada estimates show the median household would need to double their annual earnings to qualify for a mortgage on a typical home across the country’s major urban markets.
The Montreal-based bank said in its report that the third quarter of the year marked the third consecutive improvement in housing affordability.
The national lender tracks housing affordability in 10 major markets across the country, broken down by home prices, household incomes and mortgage rates.
The mortgage payment on a representative home as a percentage of income (MPPI) fell 1.3 percentage points to 56.6 per cent in the third quarter. Home prices across the country only rose half a percentage point quarter-to-quarter, while median household incomes rose 1.1 per cent.
The benchmark five-year mortgage rate similarly declined by 17 basis points last quarter. That came as the Bank of Canada continued to deliver cuts to its policy rate, moves that broadly lower the cost of borrowing in the country and help sidelined homebuyers qualify for a mortgage.
Affordability improvements were spread across most of the markets included in the report, with the exception of Quebec City, which saw a larger gain in home prices in the quarter.
Vancouver saw the biggest affordability improvements, National Bank, but the city remains the least affordable overall. The MPPI stands at 92.3 per cent in Vancouver, compared to the 56.6 per cent average across major urban centres.
Toronto’s housing affordability levels reached their best levels since the first quarter of 2022, National Bank said. But at a rate of 78.4 per cent, the MPPI here remains well above historical averages of 53.2 per cent.
The report pegged the qualifying income needed to buy a home in Canada last quarter at $186,963 last quarter, roughly double National Bank’s estimates for the median household income across the 10 major markets.
The income needed to buy a home rises to $236,529 in Toronto and to $258,504 in Vancouver.
To buy a representative condo in the 10 markets surveyed, the annual income needed falls to $142,364.
Housing affordability hope may be 'short-lived'
Housing unaffordability has been a hot-button issue in Canada over recent years, and National Bank economists Kyle Dahms and Alexandra Ducharme said in the report that the latest easing “offers a little hope.” The MPPI now stands at its lowest level in a little over a year, they noted.
But the relief may be “short-lived,” Dahms and Ducharme warn. Bond yields, which lenders use as a benchmark for fixed-rate mortgages, have backed up since September, limiting hopes for more rate relief in the months to come.
The National Bank analysts note that “restoring housing affordability remains a major challenge for policymakers” and are skeptical about the impact of Ottawa’s proposals to extend the amortization limit for first-time homebuyers to 30 years, up from 25 years.
Those measures, set to take effect on December 15, seek to lower the monthly carrying cost of a mortgage, making it easier for a homebuyer to qualify for a purchase.
Dahms and Ducharme question “whether such a measure really contributes to affordability” when taking into account that the mortgage will need to be paid for another five years. Additionally, if many Canadians take advantage of the new program, the resulting demand could put more upward pressure on prices.
At the same time, the economists note that Ottawa’s plans to limit the pace of immigration in the coming years will “relieve some of the pressure on prices,” before adding that it “could take a while to fix the imbalances in the housing sector.”