High home prices and rising interest rates over the course of 2022 have made it significantly harder for buyers to qualify for the average mortgage, driving RBC’s affordability measure to its worst-ever level.
The bank’s aggregate affordability measure rose “an astounding” 14.5 percentage points over the past year to 62.7%, according to its third-quarter report.
“Buyers face materially higher ownership costs in every market we track,” wrote report author Robert Hogue.
Nowhere is that more true than in Vancouver and Toronto, where, to qualify for a home valued at the benchmark price, buyers now require an income of $268,000 and $240,000, respectively, according to the report.
Victoria is a close third, where buyers need at least $216,000 to qualify.
“Sky-rocketing home prices earlier in the pandemic raised the bar by several notches for Canadian buyers. But the spike in interest rates since March served a crushing blow in parts of the country,” said Hogue. “It’s never been so unaffordable to buy a home in this country.”
The pressure on buyers is being felt not only in the country’s most expensive cities, but in mid-sized markets from coast to coast. Here’s a look at the minimum incomes required to qualify for a mortgage on a typical home in various cities across Canada:
- Ottawa: $149,000
- Montreal: $127,000
- Calgary: $123,000
- Halifax: $116,000
- Edmonton: $99,000
- Saskatoon: $89,000
- Regina: $79,000
- Saint John: $74,000
- St. John’s: $77,000
Pressure to persist, but price drops will help
The glimmer of hope for buyers is that the recent correction in house prices is expected to start to ease affordability pressure somewhat in the year ahead, RBC predicts.
“We expect the national benchmark price to fall 14% from its early 2022 peak, providing significant scope to lower ownership costs once interest rates stabilize,” Hogue said.
That should start to take place in early 2023, aided in part by rising household incomes.
“Still, headwinds will remain stiff in the near term. Affordability issues aren’t likely to reverse quickly,” he added. “It will likely take years to fully reverse the tremendous deterioration that took place since 2021.”