As rising interest rates affect housing affordability, a new report suggests some relief may be imminent.
The Desjardins report on Canada’s residential real estate outlook said Thursday’s housing affordability is set to improve in 2023, though to varying degrees across the country.
The report said the provinces experiencing the biggest housing price increases during the pandemic will see the sharpest post-pandemic adjustments, including the Maritime provinces and areas around Toronto, Vancouver and Montreal. , the report said.
However, these regions are not necessarily the ones that will see the biggest improvements in affordability, said Randall Bartlett, Desjardins Canada’s chief economist.
“In the cities that have seen the greatest erosion in affordability… we think it is unlikely that they will return to pre-pandemic levels in the next few years,” Bartlett said.
According to the report, Edmonton, Calgary and Winnipeg will see the biggest improvements in affordability.
And while cities like Edmonton and Calgary will return to pre-pandemic levels of affordability by the end of 2024, Ontario will not close.
According to the Desjardins Affordability Index, affordability in Ontario should return to where it was in early 2021.
The increase in interest rates by the Bank of Canada has affected the housing market, slowing the pace of home sales and causing home prices to plunge.
Since March, the central bank has raised its key interest rate from 0.25 to 3.25%, resulting in higher borrowing costs for Canadians.
According to the Real Estate Association of Canada, the average price of a home sold in August was $637,673, down from $816,720 in February.
However, recent reports from congressional budget officials and the RBC show that cheaper homes don’t necessarily make buying a home more affordable.
The PBO’s Home Appraisal Review released last month said the cost of an average home is 67% higher than what the average household can afford and an RBC report said households The average family will need to spend 60% of their income on ownership costs.
With interest rates set to go even higher, Bartlett said housing affordability will continue to deteriorate for another three to six months. However, when interest rates stabilize, affordability will improve.
The report says higher affordability will lead to a recovery in the housing market starting in 2024.
Desjardins is also forecasting the Canadian economy will enter a recession early next year. The report warns governments will need to “minimize the impact of the recession on home construction.”
“Efforts to boost supply must be sustained to accommodate Canada’s rapidly growing population without generating new foam,” the report said.
This Canadian Press report was first published on October 6, 2022