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Home Affordability Continued To Erode In August, Hitting A National Increase of 8.27% In Income Needed.

Home Affordability Continued To Erode In August, Hitting A National Increase of 8.27% In Income Needed.
Written by
  • Ashley Howard
| Sep 21, 2023
Reviewed, Oct 25, 2023

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    One thing is for sure – In August, borrowers felt the prior July 12th Bank of Canada hike. This is noted by the increased annual income needed of nearly 9.0% across Canada from 2022 to 2023.

    This month’s CREA report highlights the impact of the July 12th Bank of Canada rate increase of 0.25%. While signals point to a steadying, more balanced housing market by the end of the year, it’s indisputable that borrowing challenges have worsened. 

    According to the latest CREA report on September 15th, the following developments occurred:

    1. Homes sold were down 4.1% from last month. Which is usually expected in the late summer months.
    2. The total transactions posted (not seasonally adjusted) were up 5.3% compared to August 2022. This shows a positive trend that the market decline in 2022 is behind us. 
    3. The average home price Canada-wide was $750,100, up 2.1% from August 2022, but notably down from $757,300 in July.
    4. The number of newly listed properties sat at a 0.8% increase from July 2023.

    “August was the first full month of housing data following the Bank of Canada’s July rate hike, so a dip in activity was expected,” said Shaun Cathcart, CREA’s Senior Economist. “The demand is obviously still there, and it will be back, but as the housing affordability crisis re-emerges as a top policy issue, for now, the slowdown on the buyer side should help keep a lid on prices.”

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    Home Affordability Continued To Worsen Year-Over-Year In August In All Provinces 

    To better understand the impact, we turned to our proprietary data. Looking at our set of numbers,  it is clear that the housing market was negatively impacted by the latest Bank of Canada rate hike on July 12. It increased the prime rate to 7.20%, and the lender’s best 5-year fixed today stands at 5.34% compared to 4.34% in August 2022. 

    In past months, there was at least one or two provinces where income needed fell; however, in August, there was an increase in income needed across all 10 provinces.

    This month’s home affordability report highlights a significant observation worth noting. In contrast to past months, where home prices may have decreased, but the required income still skyrocketed due to rising interest rates, the current scenario depicts a situation where home prices have risen simultaneously with rates.

    This makes it all the more notable for those thinking and able to buy to start planning now. Especially if things continue to head into a buyer’s market by the end of the year. 

    “Last January we saw that fixed mortgage rates remaining above 5% primarily contributed to the lowest, post-pandemic, national average sale price.” says Chase Belair, Co-Founder and Principal Broker of nesto “We’re back above 5% so unless fixed interest rates decrease, there’s a fair argument to be made in favour of home prices trending back down in the near future which should provide opportunity to would-be home buyers looking to enter the market.”

    Here are some highlights from our data: 

    • Quebec saw average home prices increase 8.74% year-over-year to $471,800, with the income needed increased to $102,599 from $94,354 in 2022.
    • Ontario logged an increase in average home prices, rising $9,300 to $908,000, with the income needed reaching $189,489 from $174,002 in 2022.
    • British Columbia noted a $10,200 increase in average home prices, which resulted in a $16,995 rise in income needed, bringing that number to $205,492 from $188,527 in 2022.

    *Data is based on a mortgage with a 25-year amortization, a 20% down payment, and includes $100 for monthly heating costs.
    **Home prices sourced from CREA Report

    6 Provinces Where You Can Still Buy A Home Under $100,000 Salary August 2023

    1. Newfoundland & Labrador: $63,055
    2. Saskatchewan: $72,559
    3. New Brunswick: $74,468
    4. Prince Edward Island: $84,062
    5. Nova Scotia: $85,752
    6. Manitoba: $96,721

    4 Provinces Where You Need Over A $100,000 Salary To Buy A Home August 2023

    1. British Columbia: $205,492
    2. Ontario: $189,489
    3. Alberta: $103,145
    4. Quebec: $102,599

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    Final Thoughts & Predictions for Next Month:

    While it’s great to see CREA report a balanced market is appearing, the real thing we look forward to is a drop in interest rates. Yet, it seems unlikely that will happen in 2023. As we look to October 2023’s report, we expect a similar pattern to appear – Home prices will likely continue to rise with market recovery. Still, with higher rates, even with a pause this month,  income affordability will be brought into question.

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