A Deep Dive into Housing Affordability Concerns

Families are finding it harder and harder to afford a home in almost all major Canadian cities.

The dream of homeownership in Canada has never seemed more out of reach. A recent report by RBC highlights a stark reality: housing affordability in Canada has hit its worst-ever level, posing significant challenges for prospective buyers.

According to Robert Hogue, Assistant Chief Economist at RBC, the national aggregate housing affordability measure surged to an unprecedented 62.5% in the third quarter of 2023. This uptick, driven by soaring mortgage rates and home prices, eclipses the previous all-time high of 61.2% recorded in the same quarter of 2022.

To put this into perspective, RBC's affordability index measures homeownership costs as a percentage of median household income. A higher percentage indicates lower affordability. The historical average of this measure is 41.3%, with January 2020 marking a notably lower rate of 42.4%.

The impact of the pandemic on housing affordability is profound. In 2019, about 60% of Canadian households could afford to own a condo based on their income. Fast forward to 2023, and this figure has plummeted to just 44.5%. The situation is even more dire for single-family homes, with only 25.7% of households having adequate income to afford them.

Regionally, the affordability crisis varies. In Manitoba, Saskatchewan, and Alberta, over 75% of households can afford to own a condo. In contrast, in Ontario and British Columbia, less than 45% and 33% of households respectively can afford a condo. Single-family homes are even less attainable, with only 21.7% of households in Ontario and a mere 9.8% in BC able to afford them.

In urban centers like Toronto, Victoria, and Halifax, affordability has plummeted to its worst levels, with Toronto hitting a staggering 84.1%. Vancouver presents an alarming scenario, where the average household income is insufficient to cover the costs of owning an average home, pushing RBC's affordability measure to an "astounding" 102.6%.

Despite this bleak picture, Hogue suggests there may be a glimmer of hope on the horizon. With home prices expected to stabilize or decline in most markets and incomes projected to grow, a slight improvement in affordability is anticipated. He predicts that the Bank of Canada might start reducing interest rates around mid-2024, offering some relief. However, any improvement will be modest, with the affordability measure forecasted to drop to 56.3% by January 2025, still well above the long-term average.

Hogue cautions that the journey to restoring affordability in Canada's housing market will be a long one. Prospective buyers, particularly in large urban markets, will face tough conditions for the foreseeable future. This scenario underscores the importance of careful planning and informed decision-making for those looking to navigate Canada's challenging real estate landscape.