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Canadian Housing Affordability May Improve (in 2027)

Homes in Canada will likely become somewhat more affordable, but it’s going to take time, suggests a recent report by Oxford Economics.

By Josh Sherman | 2 minute read

Aug 16

A rebound in home prices and higher interest rates are further compromising Canadian housing affordability — for now, at least.

Canadian housing affordability has eroded to the worst level on record — and the situation is likely going to get worse before it gets better, according to Oxford Economics’ recently published Canada Housing Quarterly Chartbook.

During this year’s second quarter (Q2), Oxford Economics’ Housing Affordability Index, which dates back to at least 2005, reached an all-time high reading of 131.9. “This means the typical Canadian house is now around 32% beyond the borrowing capacity for a median-income household,” the report, authored by a trio of Oxford Economics economists, explains. “The deterioration in affordability in Q2 reflects a surprisingly strong rebound in housing prices that partially unwound the prior correction in prices.”

“We expect a continued rise in house prices and higher mortgage rates, now that the Bank of Canada has resumed hiking interest rates, will further worsen housing affordability.”

An index reading between 90 and 110 is considered affordable, while anything below that is deemed “very affordable” and anything above “unaffordable.” To calculate affordability, Oxford Economics looks at benchmark house prices and median incomes, and assumes homebuyers have a 20% downpayment and a five-year fixed-rate mortgage with a 25-year amortization period. Households should not exceed a 39% gross debt service ratio, which measures how much of your income goes towards housing costs.

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Ontario Has the Most Unaffordable Local Housing Markets

Of the 23 local Canadian housing markets Oxford Economics individually analyzed, just five fell in the affordable range: Calgary, Montreal, Ottawa, Halifax, and Windsor. An additional seven were very affordable: Saint John, Regina, Edmonton, Winnipeg, Moncton, Quebec City, and Saskatoon. Unsurprisingly, Vancouver and Toronto were head and shoulders above the rest for unaffordability, with index readings of about 170 and 160, respectively. Out of the 11 unaffordable markets, nine were from Ontario. The only other out-of-province example besides Vancouver was nearby Victoria, B.C., the third most unaffordable city on the list.

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The high concentration of unaffordable Ontario markets identified in the Oxford Economics report echoes recent findings from digital real estate platform Wahi. In fact, according to the new Ontario edition of Wahi’s Roadmap to Housing Affordability, only one city in the province is affordable for the average household income. (Wahi’s Roadmap to Housing affordability is a new interactive tool that lets homebuyers see where they can afford a home, based on their earnings and local home prices.)

 

At the national level, Oxford Economics doesn’t anticipate its affordability index will dip below the 110 threshold until 2027 — that is, if interest rates ease and incomes grow as expected. Multiple factors are creating more short-term pain for prospective homebuyers, the report outlines. “We expect a continued rise in house prices and higher mortgage rates, now that the Bank of Canada has resumed hiking interest rates, will further worsen housing affordability,” reads the report, laying out predictions for the third quarter of this year. While it may take several years for the return to affordability, the report suggests a stabilization in home prices should occur a lot more quickly: “We think the recent upswing in house prices is now coming to an end.”

Josh Sherman

Wahi Writer

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