What You Need to Earn to Buy a Home in Canada, and Young Canadians Still Intend to Be Homeowners

This week’s top real estate stories.

By  Jared Lindzon | 2 minute read

Every Friday, Wahi brings you the most important real estate stories from the past week.

Inflation Up, Odds of a July Rate Cut Down  

Canada’s path towards lower interest rates has been a gruelling journey of two-steps-forward, one-step-back, so we shouldn’t be all that surprised that inflation is once again moving in the wrong direction. This week Statistics Canada announced that prices have risen 2.9% since last May, up from an encouraging 2.7% reading in April, casting doubt on what many had hoped would be another interest rate cut in July, following last month’s .25% reduction. StatsCan says the higher costs were largely thanks to pricier cellular services, travel, and rent. The market now puts the odds of a July rate cut at just 45%.

High Rents May Prevent Lower Mortgage Costs  

It’s hard not to appreciate the irony of high rental costs preventing homeowners from gaining some mortgage rate relief; or as we call it, the Alanis Morissette effect. According to this week’s CPI data from Statistics Canada, rents jumped 9% this year nation-wide, including a jaw-dropping 15.7% increase in Alberta and 8.4% in Ontario. As landlords jack up prices, however, those higher costs are translating to higher inflation, which means higher interest rates, which means they need to spend more on their mortgages. Had rents increased at a slower pace, a July rate cut would be more likely. Isn’t it ironic?

Younger Canadians Still Dream of Homeownership  

Despite nightmarish market conditions, younger Canadians haven’t given up on the dream of homeownership. According to a survey from Royal LePage, 27% of renters plan to buy in the next two years, including 40% of those aged 18 to 34. Though 61% of younger Canadians say they don’t think their income is sufficient to buy in their desired area, 53% are building their savings and 46% are using the First Home Savings Account to work towards owning in the future. However, 27% of young Canadians say they have more important financial goals, roughly double the proportion of other generations.   

GTA New Home Sales Hit Record Low  

Canada’s second most expensive housing market is in a tailspin and getting dangerously close to a crash landing. Last month new home sales in the GTA hit their lowest point since May of 2020; at the very beginning of the pandemic, before we all figured out how to use Zoom. Only 539 new condo and apartments changed hands, down 75% from last May. That’s according to a report by BILD, which found year-to-date new home sales in the GTA are now at record lows, making it even harder for builders to finance and build much-needed new housing inventory.

Despite Falling Rates Canadians Need to Earn More  

Interest rates may have taken a slight dip in May, but overall affordability only got worse. According to Ratehub.ca, it got harder to buy in 11 of 13 markets last month, as a slight drop in borrowing costs was offset by higher home values everywhere but Toronto and Halifax. After a $9,400 increase in prices in Hamilton, for example, buyers need an extra $1,550 in annual income to pass the 7.49% stress test, or about $171,000 in household income. That’s still not much compared to Vancouver, where buyers need to earn $233,000 to afford the average home, or the $216,000 needed in Toronto.

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