Canadian homeowners experienced a slight relief in the second quarter of the year, with homeownership costs easing, mainly due to higher household incomes. A report by RBC’s Assistant Chief Economist, Robert Hogue, revealed that while housing costs technically rose due to strong springtime demand boosting property values, the 1.4% rise in household income from Q1 helped improve affordability.
The RBC’s Aggregate Affordability Measure, which assesses ownership costs as a percentage of median household income, decreased by 0.3% to 59.5%. Despite this improvement, it’s still close to the record high of 61.2% seen in Q3 2022. Hogue predicts that with mortgage rates staying high and prices increasing, housing affordability is likely to decline further in Q3 and Q4. The forecast indicates the affordability measure could reach 62.2% by the end of 2023.
A Glimmer of Hope for 2024
However, there’s optimism for 2024, especially when the Bank of Canada starts cutting interest rates around mid-year. Hogue forecasts the affordability measure to drop to 54.8% by Q3 2024. But until then, buyers in major Canadian markets will face tough affordability conditions. This challenging scenario likely contributed to a cooling of resale activity in Ontario and British Columbia this summer, with many buyers priced out in Toronto and Vancouver.
In Ontario, the RBC’s Aggregate Affordability Measure stood at 79.6% in Q2, making homeownership unattainable for many. Meanwhile, in Vancouver, known for its high prices, the measure edged up to 97.5%, approaching the worst level of affordability ever recorded in a Canadian market (99.1%). Victoria’s affordability was slightly better at 73.0%, and Calgary, labeled the hottest market, saw the measure sink to a 15-year low of 44.0%. On the positive side, St. John’s saw a significant improvement, with the measure dropping to 26.2% in Q2.
Hogue highlighted that restoring housing affordability will be a slow process unless there’s a housing crash or a sudden change in monetary policy. The key lies in significantly increasing housing supply, which is challenging due to soaring construction costs and limited capacity to build units affordable for ordinary Canadians.