Canada Has a Housing Affordability Crisis: RBC

New research from RBC shows that buying a home in Canada has never been more unaffordable. We're joined by Robert Hoge, deputy chief economist at RBC and author of the report. Thank you very much for taking the time. Robert. Well, thanks for the invitation. We were struck by the graph in his report that shows the impression of the income needed to buy a house in Canada. We will mention it. I'm wondering if you could tell me a little about what we're doing. Really looking here, and I mean those costs, the ones owned by Scott, the costs have already skyrocketed over the last year, especially during the first two quarters of this year, obviously, you know, the very sharp increase in values of properties or during the pandemic.

It contributed, but more recently it's been the increase in interest rates that has really driven up the monthly payments, for example, if one were to buy it at the current price, so, you know, it was last quarter, we thought you knew that. what things are shaping up and we're probably going to see the worst measure of

affordability

that we've ever recorded and here we are today that, you know, we've broken that record that's been there since the uh, early '90s, really and I'm sure which is not a surprise to anyone, especially in Ontario and BC where you know the pressure has been intense from the players, so what we were seeing there, even though you know that 60 percent of your revenue would go into average to Canada would go toward home ownership costs, and then when you look across the country in markets like Vancouver, I mean, it's 90 uh and then in the Toronto area, it's uh over 80 percent.

So no, obviously the most expensive markets are where the tensions are most intense, but what we've seen is that higher interest rates affect everyone across the country and we've seen

affordability

deteriorate across the country. Together, although the degree of affordability varies considerably from market to market and some markets still don't, I would say they are reasonably affordable, for example, in the Prairies and parts of Atlantic Canada, so it's very, you know, very image fixed but 90 in Vancouver Robert is right and what it really means is that people obviously don't pay, they don't pay that, but that's right, really our measure refers to those who are in the middle of the income distribution if they did. buy today at today's price with today's interest rate it's true that they obviously couldn't afford that typical home, so it's not surprising to see that more activity has shifted toward more affordable options like condos, for example, and also movement towards the smallest market we've seen during the pandemic, so you were already expecting this affordability measure to have peaked and then it got worse and now you're hoping it can still get worse from here, because we haven't seen the full increase in the interest rates you actually know is reflected in those numbers so probably in the next few months this is where hopefully the peak in affordability will be and then.

Since then, we are now seeing prices starting to soften in many parts of the country, and quite substantially, and in Ontario and some parts of BC as well. So eventually that will be part of it. will bring some relief to buyers now, probably not overnight, probably not in the next few months, but by the early stages of next year we should start to see some relief on that front, so potentially this affordability, huh.

crisis

leading to lower prices, which maybe improves the affordability situation a little bit, and getting there now that the

housing

correction will continue and this is part of the process of how markets adjust to, uh, uh, ya You know. intense, factors under stress, how much do you think prices could fall from here?

Robert, well our view is that just like for reference prices, the peak to trough will be about 14 overall in Canada, obviously there won't be a significant variation. across the country, but that would really be classified as a significant correction, you know, looking back at the

housing

decline. National housing recessions would be, this would be the most significant, and this is a measure of affordability, where do you see? that, um, levels off at uh, you know, when prices start to decline potentially further, like if you're out there, where do you think the affordability measure might end up settling in well? and no, we've taken Let's take a quick look at this now, we're not trying to simulate what it would look like, but just until the end of next year and then hopefully early next year we'll know that some of the spike will increase.

This will be reversed, but not entirely, probably if you know what third it may be a reversal by the end of next year, but you would still know, let housing affordability is still very limited for most buyers at that time . Obviously, the market will remain under significant pressure, probably not until 2024 and possibly beyond.