One key problem with affordability in the Canadian housing market today is that the country is actually in the middle of a mortgage rate cut. While lately, the central banks have been lowering mortgage rates, the actual outlook for most Canadians remains more than a little grim. Aspects such as increasing house costs, increase in demand inflow due to immigration and decreasing real income make housing unaffordable or a mere dream for homeownership especially in areas such as Toronto or Vancouver.
Rising House Prices Outpacing Rate Cuts
Canadian house prices rose by more than 30 percent since April 2020. As we can see, having reduced the 5-year mortgage rate to 150 bps, the average monthly payments on mortgages are 40% higher than in early 2020. Unfortunately, this gap between house prices and rate cuts maintains homes as unaffordable assets to several potential home buyers.
Weak Spending Power Hurts Buyers
Real household disposable income, which has risen by 2.3% since the pandemic, does not seem to be covering rising home costs. The situation in the Canadian real estate market is still unsustainable to this day because affordability, it should be remembered, depends not just on mortgage rates; incomes are also on the line; and house prices, at the moment disproportionately high.
Immigration and Population Growth Increasing Demand
New census data show that Canada’s population has reached record levels largely owing to an increase in migration. This factor has led to increased demand for even more houses hence increasing the house prices even higher. Toronto and Vancouver are quite good examples to demonstrate the fact that the demand has gone up so much higher than the supply and so home affordability has gone down even as the interest rates are coming down.
Rate Cuts Won’t Solve the Crisis Alone
For housing to be as affordable as it was before, two things need to happen, housing prices need to reduce and the interests on housing loans too need to reduce. Market gurus indicate that house prices need to drop by an average of at least 10%, while rates would need to be slashed to half. But this does not look likely shortly.
Mortgage rates in Canada may be on the decline, but this does not mean that housing remains affordable to Canadians. Others, still can’t afford homes because home prices have not come down or household incomes boosted significantly.
