Home Affordability Only Improved In 1 Out of 10 Provinces 

Though home prices have declined annually, higher interest rates remove any gains that would increase affordability. This is noted in an increase in 9 out of 10 provinces’ income needed compared to a decrease in home prices in 7 out of 10 provinces.

This month’s CREA report highlights that sales are levelling off, and new listings are returning closer to normal numbers. This stabilizes the market, giving buyers more choice and slowing price growth. 

The market appears to be responding to the Bank of Canada rate hike in mid-July and longer-lasting above-target inflation, with signs of sales and price growth tapering off further in August. 

According to the latest CREA report, posted on August 15th, the following developments took place:

1. Homes sold were down 0.7% from last month. The total transactions posted (not seasonally adjusted) were up 8.7% compared to July 2022.
2. The average home price was $668,754, up 6.3% from July 2022. 
3. The Aggregate Composite MLS HPI logged in CREA’s August report was 1.1% on a month-over-month basis, a larger-than-normal increase for a single month but only half as large as gains recorded in April, May, and June.

Home Affordability Continued To Worsen Year-Over-Year In July In All Provinces Except British Columbia

Looking at nesto’s data, 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 5.24% compared to 4.34% in July 2022. 

So, while we logged a notable decline in home prices across 7 of 10 provinces – income affordability only improved in 1 out of 10 provinces due to increased mortgage interest rates. 

This can be seen in Prince Edward Island, where the average home price decreased by $9,500, but the income needed to qualify increased by $2,945 – from $79,087 to $82,032.

Being on the bright side of mortgages, though, we are happy to report some positive developments:

• British Columbia noted a $17,800 decrease in average home prices which resulted in a $12,003 drop in income needed, bringing that number to $204,569. 

• Quebec, saw average home prices decline 1.03% year-over-year to $469,900, though income needed increased to $81,032. 

• Ontario saw a slight decrease in average home prices, falling $6,000 to $920,000, despite the fact income needed did increase.

“As a result of rate increases, the higher qualifying rate used to determine one’s borrowing power in their mortgage application is counter-productive to the affordability gains recognized by the decreasing property values. If the Bank of Canada decides to maintain the current policy rate and fixed rates stay flat or decrease, more Canadians should have an opportunity to enter the housing market,” says Chase Belair, Co-Founder and Principal Broker of nesto.

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

1. Newfoundland & Labrador: $61,534
2. Saskatchewan: $73,172
3. New Brunswick: $73,655
4. Prince Edward Island: $82,032
5. Nova Scotia: $84,992
6. Manitoba: $94,660

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

1. British Columbia: $204,569
2. Ontario: $190,541 
3. Alberta: $102,053
4. Quebec: $101,477

Final Thoughts & Predictions for Next Month:

While it’s great to see home prices lower, 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 September 2023’s report, we expect a similar pattern to appear – Home prices will continue to level out. Still, with higher rates, income affordability will be brought into question.