Housing affordability worsened in Q2, but should improve due to falling prices - Mortgage Rates & Mortgage Broker News in Canada
Housing affordability worsened in Q2, but should improve due to falling prices - Mortgage Rates & Mortgage Broker News in Canada
Abstract
Housing affordability in Canada reached its worst level in 41 years in the second quarter, shortly after home prices peaked and as interest mortgage rates started to rise. With home prices down significantly in certain markets, and a stabilizing of fixed mortgage rate increases, affordability should begin to improve, the report's authors noted. "This development, combined with a stabilization of the benchmark 5-year mortgage rate, should improve affordability before the year-end." Rising rates to blame for the latest deterioration in affordability While rapidly rising home prices were largely responsible for the deterioration in housing affordability over the past year, an increase in mortgage rates was the key factor in the second quarter. "To give an idea of scale, a 123-bps increase represents a surge of 14.4% for mortgage payments on the national composite, or an extra $500 a month, assuming no change in house prices." At that level, it now takes an average 63.9% of income from a representative household to service a mortgage in Canada's main urban centres, the report found. Mortgage payments as a percentage of household income have averaged 40.7% since 2000. 40% of Canadians are concerned they have too much debt Borrowing costs have soared since the start of the year, with the Bank of Canada raising its overnight target rate by 225 basis points to 2.50%. That has increased interest rates for variable-rate mortgage holders and those with lines of credit. Fixed mortgage rates have also rocketed higher, with average deep-discount rates rising from a low of 1.52% in March to approximately 4.50% today.