RBC raises alarm about Canadian housing crisis
High prices have ‘ raised the bar to impossible levels’
Housing affordability in Toronto reached a historic low at the end of 2021, nearing levels second only to the 1990s housing crash, according to a new report from RBC Economics.
RBC Economics’ housing affordability reports detail how expensive it is to buy a house in Canada. The reports are meant to put housing price increases into the context of what it takes to actually buy and own a home, considering household income and mortgage carrying costs. But this month’s report, headlined “Housing affordability spiralling to worrisome levels,” is downright sobering compared with previous ones.
Toronto is not the only region facing barriers to home buying, as soaring prices and low affordability were “widespread” in Canada in the fourth quarter of last year, says the report by RBC’s Robert Hogue, published Wednesday.
Rapidly rising prices in the early months of 2022 have “already raised the bar to impossible levels for many homebuyers,” Hogue adds.
“This trend isn’t over,” the report said. As prices continue to rise and interest rates increase, the numbers are projected to only get worse
— a lot worse.
Here’s a roundup of how RBC describes Canada’s housing crisis.
Across Canada
RBC’s metric for aggregate affordability in Canada reached a 31- year low in the last quarter of 2021, second only to 1990, Hogue says.
“Price gains recorded during the pandemic have been nothing short of stunning across Canada, surpassing 30 per cent nationwide and far more in several markets.”
But it wasn’t just changing housing needs that drove the market upward. Better household incomes ( in part due to government pandemic supports) and low interest rates helped create the growth in demand.
“Increased investor participation further stirred up the buying frenzy and widened the gulf between demand and supply,” the report notes.
“Whether lofty valuations can be sustained will largely depend on how long demand- supply conditions remain ultra tight and market sentiment stays bullish.”
In local markets
While rising prices were seen across Canada, the most expensive markets still worsened.
“Soaring prices are crushing affordability” in Toronto, Vancouver,
Victoria and southern Ontario.
The deteriorating trend, however, is widespread, Hogue wrote. “Soaring prices and the rapid loss of affordability so far haven’t done much to rebalance Toronto’s market.”
Supply is “near historical lows” as buyers snap up properties as soon as they’re on the market.
“The frenzy’s persistence is perplexing considering the beating the area’s affordability is taking,” adds Hogue. “We expect the measure will go further up ( likely by a lot) as prices continue to escalate near term and interest rates increase.
A new hot spot?
Amid the housing frenzy, a new hot spot may have emerged: Halifax had among the highest rates of price appreciation in the country at 27 per cent in the past year.
What the future beholds
The silver lining is that buyers were expected to still be able to realize their ownership dreams by lowering their expectations. That could mean purchasing a condo instead of a single- family home, moving into a more affordable location, getting a variable mortgage or renting out part of the property, for example.
“The outlook for affordability is grim,” the report says. With the recent Bank of Canada interest rate hike, the report predicted ownership costs would “spiral even higher.”