In this topsy-turvy economy, home prices have plummeted but the income needed to afford them continues to increase.
That's according to Ratehub.ca, which every month calculates the income necessary to afford average real estate prices in each major Canadian city. The mortgage broker also weighs mortgage rates, stress tests (which examine a household's ability to pay their mortgage if rates increase), utility prices and taxes.
Ratehub.ca assumes a "mortgage with 20% down payment, 25-year amortization, $4,000 annual property taxes and $150 monthly heating." It uses the average fixed mortgage rate among Canada's five largest banks (BMO, CIBC, RBC, Scotiabank and TD) and real estate data from the MLS Home Price Index.
It found that even though the average Montreal home price fell $35,100, to $511,500, between March 2022 and March 2023, the required income rose $12,240, to $107,310, in the same time period.
Vancouver (March 2023 average home price: $1,143,900; necessary income, according to Ratehub.ca: $221,580), Victoria (home price: $851,400; income: $168,750), Halifax (home price: $496,900; income: $104,660), Edmonton (home price: $371,200; income: $81,950), Winnipeg (home price: $336,300; income: $75,650), Toronto (home price: $1,118,500; income: $217,000), and Ottawa (home price: $622,300; income: $127,350) all also saw necessary income levels increase despite real estate price dips.
Of the 10 cities included in the report, only Calgary saw the average price of a home increase year over year, to $528,700 in March 2023. The income needed to afford it was $110,430.
And only in Hamilton did both figures decrease in that 12-month period (March 2023 average home price: $835,800; necessary income: $165,940).
The reasons for the odd situation nationwide, according to Ratehub.ca co-CEO James Laird, are rising mortgage and stress test rates.
The company applied a 5.54% mortgage rate and 7.54% stress test rate in its March 2023 calculations, compared to 3.14% and 5.25%, respectively, in March 2022.
"Even though home values are down in nine out of 10 cities we looked at, affordability has actually gotten worse because rates have increased so much that Canadians now qualify for less compared to a year ago," Laird continued. "Homebuyers have to earn between $5,650 and $21,360 more in additional annual income to buy a home, compared to March 2022."
"With supply of new listings tight and some home buyers returning to the market, don’t expect home affordability to improve in the coming months."
This article's cover image was used for illustrative purposes only.
Median three-bedroom house prices around Montreal-area REM stations.
List of median three-bedroom house prices around Montreal-area REM stations.
List of median three-bedroom house prices around Montreal-area REM stations.
Map of variations in median three-bedroom house prices around Montreal-area REM stations between 2021 and 2022.
