Even before fixed mortgage rates started rising last month, housing affordability continued to deteriorate in the third quarter, the National Bank of Canada reported Wednesday.

Housing affordability posted a third consecutive quarterly decline, while over the past 12 months it has worsened the most in a decade, according to NBC’s Housing Affordability Monitor.

“Although interest rates were essentially unchanged in the quarter and income continued to grow at a decent pace, a strong jump in home prices was more than enough to reduce affordability,” the report reads. Average home prices were up 4.6% from the second quarter and up an annualized 18.6%, the largest increase since 1989, NBC said.

The three housing markets that saw the greatest deterioration in affordability in the quarter were Vancouver, Victoria and Toronto.

“Looking at data for November, mortgage interest rates have moved up nearly 25 basis points with the potential for further increases as monetary policy normalization intensifies,” the report noted. “We estimate that a hypothetical 100-bps increase in rates represents approximately a 12% reduction in buying power for the same payment. While this will be a headwind for home prices going forward, the recent evolution already represents a challenge for buyers entering the market not only for the monthly payment but also for the down payment.”

Time Needed to Save for Down Payments Continues to Grow

On average, buyers in the country’s 10 largest urban markets would need more than six years (74 months) to save up the minimum down payment for their purchase (all home types). That’s double the 37-month average since 2000, NBC notes. This is based on a 10% savings rate of the median pre-tax household income.

In Toronto and Vancouver, the timeframe is much more extreme. For non-condo properties, it would take the average Toronto homebuyer 27.5 years (up from 26.5 years last quarter) to save up a minimum down payment and 36 years for a buyer in Vancouver (up from 34 years).

By comparison, here’s how long it would take to save a 10% down payment in other Canadian markets:

• Victoria: 350.2 months for single-family; 50.4 months for condos
• Montreal: 46.8 months for single-family; 31.5 months for condos
• Calgary: 36.1 months for single-family; 16.7 months for condos
• Ottawa: 57.3 months for single-family; 26.5 months for condos
• Winnipeg: 29 months for single-family; 18.2 months for condos

The median household income needed to purchase a home in one of the 10 largest cities has also risen to $144,356, again with higher results in Toronto ($191,230) and Vancouver ($215,354).

Homeowners in those cities are also using a larger percentage of their income to service their mortgage, based on the median household income: 68.1% for single-family homeowners in Toronto (up from 65.6% in Q2), and 89% of a Vancouver borrower’s income (up from 84.7% in Q2).

Nationally, borrowers are using 59.1% of their income to service their mortgage for single-family homes.

Ontario to Launch Housing Affordability Task Force

In response to the deteriorating affordability situation, the Ontario government announced this week it would launch a Housing Affordability Task Force that will provide recommendations to the Minister of Municipal Affairs and housing on how to improve the situation.

The Ontario government cited some progress made on that front, including a 10-year high of 73,838 housing starts in 2020, with comparative 2021 starts up an additional 16% year-to-date.

“While Ontario is already seeing signs of progress and housing starts have trended upwards, there is still more to do,” reads the 2021 Ontario Economic Outlook and Fiscal Review.

Nationally, during the last election the Liberal party promised to invest $4 billion in a Housing Accelerator Fund to create 100,000 new middle-class homes by 2024-25, along with additional measures to improve affordability. It’s yet to be seen which of those promises will be feasible given its minority government situation.

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Last modified: November 11, 2021