(Ottawa) As rising interest rates weigh on housing affordability, a new report suggests some relief may be on the horizon.
Posted at 4:49 p.m.
In its outlook for Canadian residential real estate, Desjardins said Thursday that housing affordability should improve in 2023, although to varying degrees across the country.
Provinces that have seen the largest house price increases during the pandemic will experience the largest post-pandemic corrections, including the Maritimes and areas around Toronto, Vancouver and Montreal, according to the report.
However, these regions are not necessarily the ones that will see the greatest improvements in affordability, argued Randall Bartlett, senior director for the Canadian economy at Desjardins.
“As for the cities that have experienced the greatest erosion of affordability […]we believe they are unlikely to return to pre-pandemic levels within the next two years,” Bartlett said.
According to the report, Edmonton, Calgary and Winnipeg will experience the greatest improvements in affordability.
And while cities like Edmonton and Calgary will return to pre-pandemic levels of affordability by the end of 2024, Ontario will not come close.
According to the Desjardins Affordability Index, affordability in Ontario will return to the same level as at the start of 2021.
The Bank of Canada’s interest rate hikes hurt the housing market, slowing the pace of home sales and pushing prices down.
Since March, the central bank has raised its key interest rate from 0.25% to 3.25% so far, which has resulted in higher borrowing costs for Canadians.
In its report, Desjardins noted that the resale market continued to cool in Quebec, but pointed out that while affordability continued to deteriorate, the drop in sales and prices since the spring was more limited in Quebec, compared to Ontario and Canada.
According to the Canadian Real Estate Association (CREA), the average price of a home sold in August was $637,673, down from $816,720 in February.
However, recent reports from the Parliamentary Budget Officer and the Royal Bank show that falling house prices have not necessarily made buying a home more affordable.
The Parliamentary Budget Officer’s house price assessment, released last month, calculates that the cost of an average house is 67% more than the average household can afford, while a report by the Royal reported that the median household should spend 60% of their income on homeownership costs.
With interest rates expected to rise even further, Bartlett said housing affordability will continue to deteriorate for another three to six months. However, once interest rates stabilize, affordability will improve, he predicted.
According to the Desjardins report, greater accessibility will lead to a rebound in the housing market from 2024.
“Property sales should initially stabilize towards the end of next year and begin to rise again in 2024,” the report states about the Quebec market. “Prices should therefore firm up at this time. »
Desjardins also predicts that the Canadian economy will enter a recession early next year. The report warns that governments will need to “mitigate the effects of the economic downturn on residential construction”.
“Efforts to increase supply must […] be sustained to meet the needs of the rapidly growing Canadian population without generating a new frenzy,” the report argues.