How disconnected are Canadian real estate prices from income? TERRIBLY

The Canadian middle class is seeing its homeownership opportunities evaporate, but that wasn’t always the case. Not just in expensive cities where high expectations pushed ownership out of reach of everyone except high-income households. But now most cities in Canada are out of reach for the country’s middle class. An average household now has to spend up to 80% of their income to pay the mortgage on a house in their local market.

Median Canadian household must spend 53% of income

Canada’s cities have never been affordable, but the gap is now comically wide. An average household will need to spend 53.2% of its income in the first quarter of 2022 to carry a mortgage on a typical home. That’s 13 points more than the average since 2000 (40.5%), already out of reach for most buyers. The recent phenomenon is pushing it to extreme levels even for an already disconnected trend.

How much has affordability changed for Canadian real estate?

The proportion of income that an average household would need to spend to pay off the mortgage on a typical home across Canada in the first quarter of 2022.

Source: NBC; Living better.

Toronto buyers should spend 75.6% of income on a mortgage

Canada’s largest city pushes this number to its limits. An average household should spend 75.6% of their income on a mortgage in the first quarter of 2022. That is 25.9 points higher than the average since 2000 (49.7%). It was already virtually impossible for the inhabitants of the city to buy a house. Now they are expected to spend 50% more income than the previous generation.

Households in Vancouver have the lowest probability of owning a home

Real estate in Vancouver is some of the most expensive in the world, so it should come as no surprise that it isn’t affordable. What might shock you is how little people earn compared to the house prices of the gilded city. An average household should spend 81.4% of their income on a mortgage on a typical home in the first quarter of 2022. This is 18.2 points more than the average since 2000 (63.2%). Needless to say, we’ll do it anyway – it’s the most extreme number in all of Canada.

Calgary and Edmonton have seen improvements in affordability

Only two major markets in Canada are more affordable than usual: Calgary and Edmonton. The average Calgary household will have to spend 27.9% of its income to pay off a mortgage if it buys a home in the first quarter of 2022. That is 4.5 points lower than the long-term average since 2000 (32.4%). It pushes the boundaries, but it has always been possible for the average household to buy a home in Canada’s third largest city.

Edmonton Real Estate also saw an improvement in its already affordable housing. An average household will have to spend 25.5% of its income in the first quarter of 2022 to pay off the mortgage. This is a decrease of 3.9 points from the long-term average since 2000 (29.4%). It was previously possible and improved.

The Canadian markets that have seen an improvement in affordability have done so for several reasons. House prices did not fall, but incomes rose much faster than debt servicing costs. With all the talk of rate hikes being viewed as punitive, most people don’t realize that rates are still 41% lower than early 2020. The erosion of affordability in most markets is due to low rates fueling exuberance, whereby households still receive a discount on capital.

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