October Sparks Hope for Canadian Homebuyers as Housing Affordability Sees Widespread Improvement
In a surprising turn of events, Canadian home prices have experienced a notable decline of over 17% since the initial interest rate hike in March. However, according to recent data from Ratehub, October marked a turning point, signaling the first month of "widespread improvement" in housing affordability.
Penelope Graham, the Director of Content for Ratehub, highlights this positive shift by noting that home prices have decreased sufficiently to ease mortgage qualification for many buyers. Even with a slight increase in mortgage rates from September to October and the mortgage stress test reaching a new average high of 8.47%, affordability improved in eight out of the ten markets studied.
Taking into consideration the latest figures from the Canadian Real Estate Association and adjustments to five-year fixed mortgage and stress test rates, Ratehub's analysis indicates that housing affordability has seen the most significant improvement in Toronto and Hamilton.
Hamilton takes the lead with a remarkable $4,990 reduction in the income needed to purchase a home, closely followed by Toronto with a decrease of $4,650. Both cities experienced substantial drops in home prices, with Hamilton witnessing a $25,100 decline and Toronto seeing a $23,400 decrease.
Even in six of the remaining eight major markets, housing affordability saw a positive shift, albeit to a lesser extent. Vancouver, for instance, witnessed a $1,440 reduction in the income required to purchase a home, as the average selling price dropped by $6,800 between September and October.
However, two cities stood out as exceptions to this trend. According to Ratehub's data, Halifax and Calgary experienced a slight increase in the income required to purchase the average home, with $1,000 more in Halifax and $350 in Calgary. These cities saw an uptick in home prices during the same period.
Looking ahead, Penelope Graham emphasizes that the future of housing affordability hinges on the Bank of Canada's next moves. With the upcoming rate decision scheduled for December 6, many economists anticipate the bank to maintain its policy rate at 5%. While rate cuts are expected in the middle of 2024, Graham warns that lower interest rates may reignite the interest of sidelined homebuyers, potentially driving home prices higher once again.
As the real estate landscape continues to evolve, October's positive trend in housing affordability brings a glimmer of hope for prospective homebuyers. However, the delicate balance between interest rates and market dynamics underscores the importance of staying informed and vigilant in navigating the Canadian real estate market in the coming months.
