Would property affordability be out of reach until 2026? A dark projection if ever there was one, which hides certain nuances. The Quebec market is one of them.
The analysis firm Oxford Economics examines the influence on the real estate market exerted by high immigration, especially in a context of probably ongoing recession. In fact, it rather points to the insufficient supply of housing in the face of this massive arrival, to conclude with a persistent upward surge in rents and an inaccessibility to property stretching over time.
Last July, the Canadian population was 700,000 more people than Statistics Canada had projected in August 2022. Oxford uses 2012 data from the federal agency which, she says, remains relevant in the current economic situation. record inaccessibility. Thus, only 8% of immigrants buy a house upon arrival. In addition, 79% of non-permanent residents opt for rental. For its part, the 2021 census indicates that 42% of immigrants living in Canada for less than five years rely on rental. After five years, this percentage drops to 18%. We can thus better understand this upward pressure which is exerted first on rents, then on house prices, exacerbated by the imbalance between supply and demand for housing.
According to Rentals.ca, the average rent was up 11.1% in Canada in September compared to the same month a year earlier. In Quebec, the average increase was 13%, with the monthly payment reaching $1,970 overall. This rent was $1,724 for a one-bedroom apartment (+16%), $2,140 for a two-bedroom apartment (+13%) and $2,410 for a three-bedroom apartment (+5%). ).
On the mortgage side, interest payments on loans increased to 5.8% of the percentage of household disposable income in the second quarter, notes Oxford. Although this ratio is below the peak of 7.3% in the second quarter of 1991, it remains the highest since 1996 and well above the average of 3.8% for the period from 2013 to 2019.
The banks could only react by increasing the amortization period. With the exception of Scotia, the percentage of amortizing mortgages over 30 years increased from 0.3% in the first quarter of 2022 to a percentage oscillating between 24 and 30% in the third quarter of 2023, adds the firm , which reminds us that the increase in this amortization period only postpones the impact of the increase in rates on debt service.
Additional price correction
This situation “will not prevent an additional correction in real estate prices of 5 to 10% by mid-2024, as expected, increasing the correction to 21% since the February 2022 peak. “But see you later “In the long run, a larger population will put upward pressure on rent and house prices” if supply is not sufficiently increased, Oxford says.
Like many economists, Oxford forecasts that the Bank of Canada’s key rate, at 5%, will remain there until mid-2024, before slowly returning to the so-called neutral rate of 2%. …in 2027. The analysis firm also expects the mortgage rate for a five-year term on a traditional loan to reach a cyclical peak of 6.2% during the current quarter, before falling to around 5. 25% around 2027.
These targets may, however, be subject to the distortion of this pressure which currently applies to the bond market. It influences more the long-term portion of the yield curve, due in particular to the high level of government debt, and modulates the more distant maturities of the mortgage rate table. As an indication, the latest projections from Desjardins Group economists see these pressures pushing the rate posted on the five-year term above 7.6% this quarter, followed by an expected reduction from the second quarter of 2024, which would bring it back to around 6.6% at the end of 2025. But in the meantime, the rate for a one-year term would drop from its current level of 8% to fall below 5%. And that of three years, from more than 7% to a little more than 5%. This is only an order of magnitude, but the trend is intended to be interesting.
Full impact to come
There remains the famous accessibility. Based on statistics from the Canadian Real Estate Association, Oxford projects that its affordability index will only return to its affordability level in 2026. That’s a long way off, but it’s already better than its previous projection , which targeted 2027. Using the average sales price, this index touched 122.7 points in the third quarter. This means that the average typical residence was 22% above capacity for median household income.
But we are talking here about a Canadian average, atrophied by the disproportionate imbalances coming from the markets of Toronto and the large cities of British Columbia. In Montreal, the index was slightly above 100 points in the third quarter. It should return to a little over 90 in the first quarter of 2026. In Quebec, where residential real estate is more affordable, it was at a little over 70. It should remain around 68 over the time horizon. retained.
And, Oxford adds, the full impact of rising mortgage rates is coming. If we use the calculation of the National Bank economists on the delaying effect on the economy, 42% of the impact of the increase in the cost of money since 2022 remains to come.