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Posthaste: Housing affordability hasn't been this bad in Canada in 31 years — and it's going to get worse

Financial Post logo Financial Post 2021-06-30 Pamela Heaven
a sign on a pole: The share of a household's income needed to cover home ownership costs in Canada is now 52% — the highest it's been since 1990. © Provided by Financial Post The share of a household's income needed to cover home ownership costs in Canada is now 52% — the highest it's been since 1990.
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Good Morning!

We all know Canadian real estate is hot, but now a new study finds that the “housing mania” has driven affordability to its worst level in 31 years.

 

The RBC affordability measure, which charts ownership costs to household income, climbed 0.9 percentage points for Canada in the first quarter of 2021 to 52%, the third straight increase.

That means that average buyers must now spend 52% of their income to cover the costs of a typical home in Canada — the highest it’s been since 1990.

In Vancouver, the least affordable market, it’s 74.9%; in Toronto, 67.7%.

chart, histogram © Provided by Financial Post

Nor is the problem limited to these two notoriously pricey markets. Buyers have flocked to smaller cities and towns, narrowing their price advantage over larger centres. “Since the pandemic, mortgage carrying costs have increased more as a share of household income in Windsor, Hamilton, London and Niagara than in Vancouver, Ottawa, Montreal or Toronto,” said RBC senior economist Robert Hogue.

Few markets have escaped this, with affordability declining the most in British Columbia, Ontario and Nova Scotia.

chart, bar chart © Provided by Financial Post

Rising home prices also wiped out the gains in affordability made in the spring of 2020 when the federal government boosted household income through pandemic aid programs.

Nor is the situation going to get better any time soon; in fact it’s likely to get worse, said Hogue.

Even though home sales have been moderating from “unsustainably-strong levels,” it won’t be enough to immediately rebalance many markets because housing supply remains tight.

“We expect prices will continue to rise in the near term, further eroding housing affordability,” said Hogue.

Condos, whose prices eased earlier in the pandemic, had provided a more affordable alternative, but now their inventories are shrinking as more buyers rush in.

chart, bar chart © Provided by Financial Post

There are still pockets of Canada where housing remains relatively affordable, says Hogue. In the prairie provinces and Atlantic Canada (except Halifax) home prices have yet to exert “abnormal pressure” on buyers.

Saint John, New Brunswick, stands out as a beacon of affordability. So much so that this market, the country’s most affordable, is attracting buyers from all over Canada.

Home sales are in record territory and “demand-supply conditions are near the tightest they’ve ever been,” said Hogue.

Saint John’s measure of income needed to cover housing actually inched lower in the first quarter to 23.4%. But RBC does not expect that to last.

“Property values are heating up fast and will drive up ownership costs in the period ahead,” said Hogue.

Happy Canada Day readers! Posthaste will be back Friday after the July 1 holiday.

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ECHOES OF EXPO ’67 Fifty-four years ago people from all over the globe flocked to Canada for the world fair held in Montreal. That was the last time Canada had a travel surplus — until now. In 2020 the travel surplus returns, but this time it’s because the border with our neighbour and biggest trading partner is closed. Join the Financial Post’s Gabriel Friedman as he talks to former U.S Ambassador to Canada David Jacobson about the economic impact of the closed border in the award-winning podcast Down to Business . The shot above, courtesy of David Enstrom, is Expo 67’s Canada pavilion.

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U.S. home prices rose at their fastest pace in 15 years, a closely watched survey said yesterday, surpassing the gains seen during the housing bubble of 2005.

The S&P/Case Shiller composite index of 20 metropolitan areas rose 14.6% through the 12 months ended in April, but economists say this housing boom is very different from the last one.

BMO senior economist Robert Kavcic, whose chart is seen below, said it is “driven by demographics, a shift in work patterns, sturdy incomes (especially in higher-paying industries), low mortgage rates … and backed by solid balance sheets after a decade of deleveraging.”

As in Canada, the U.S. market has slipped back in recent months, “but the reality is that it is still very, very strong,” said Kavcic.

“The mid-2000s run was destined to end badly; this one has staying power…”

  chart, histogram © Provided by Financial Post  

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Today’s Posthaste was written by  Pamela Heaven (@pamheaven), with files from The Canadian Press, Thomson Reuters and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com , or hit reply to send us a note.

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