Housing affordability in Canada worsened by 4.9 points in Q1'22, marking a fifth consecutive quarterly deterioration. The first quarter of 2022 was also the worst quarterly deterioration in over 27 years. Over the last 12 months, the worsening in affordability was the nastiest in 40 years. For the first time since 1994, it would take more than 50% of income for a representative household to service the mortgage on a representative home in Canada's main urban centers. The blame can be retraced in equal fashion to surging home prices and an increase in the mortgage interest rate in Q1. For the latter, our 5-year benchmark mortgage rate used by our affordability metrics rose 46 bps in the last quarter of the year which was the largest one quarter change since 2013Q3. The annual increase in interest rates was the steepest in over two decades. Most homebuyers have avoided these steep increases in recent months by opting for variable rate mortgages, but the financing conditions for those are now less attractive. Subsequently, we have started to notice their impact on weakening resale market data. Already in May, 60% of consumers answered that now is a bad time to make a major outlay (such as a home, Conference Board data). the highest level on record outside of a recession. Headwinds will continue to blow against Canada's real estate market in the months ahead with the Bank of Canada pursuing its monetary policy normalization process through higher policy rates and quantitative tightening.

HIGHLIGHTS:

• Canadian housing affordability deteriorated for a fifth consecutive quarter in Q1'22. The mortgage payment on a representative home as a percentage of income (MPPI) rose 4.9 points after a 2.2-point increase in Q4'21. Seasonally adjusted home prices increased 5.1% in Q1'22 from Q4'21; the benchmark mortgage rate (5-year term) rose 46bps, while median household income rose 0.8%.
• Affordability deteriorated in all the ten markets covered in Q1. On a sliding scale of markets from worst deterioration to least: Victoria, Toronto, Vancouver, Hamilton, Ottawa, Gatineau, Montreal, Winnipeg, Calgary, Quebec, Edmonton. This was the fifth consecutive quarter with a worsening in all markets. Countrywide, affordability deteriorated 2.7 pp in the condo portion vs. a 6.3 pp deterioration in the non-condo segment.

Source: nbc.ca