Housing has become less affordable for households across the country following the rapid rise in interest rates, despite the drop in prices observed since the end of winter.
Posted yesterday at 2:50 p.m.
The Parliamentary Budget Officer (PBO) released an update to his assessment of property prices in Canada on Thursday.
The report examines home prices relative to the ability of households to borrow and pay for a home in Canadian cities.
It shows that the gap between the average market price and the price of an affordable home has widened further in recent weeks.
“Nationally, the gap between the average price and the price that would be affordable by an average household has grown from 45% in December 2021 to 67% in August 2022, a jump of 22 percentage points in just eight months. , says Yves Giroux, DPB. This increase is attributable to the rise in mortgage rates, which reduced the borrowing capacity of households. »
300 point increase
The Bank of Canada has raised its policy rate by 300 basis points since March, and the average fixed rate for a 5-year mortgage reached 5% in June, for the first time in 12 years.
For example, in the Montreal area, a house had to sell for $339,500 in August 2022 to be considered affordable. At this price, an average household can afford to acquire a house “within the framework of a normal use of its borrowing capacity”. For the same month, the Canadian Real Estate Association’s composite MLS benchmark price was $523,700.
As part of its update, the DBP also estimated the extent of the declines in house prices that remain to come by the end of the year in the event of a rise in the fixed mortgage rate 5 years at 6.25%.
Thus, according to the PBO’s scenarios, the price of properties could fall from their peak by 8 to 23% in Montreal and by 8 to 25% in Quebec. Last August, prices had already fallen from their peak of 3% in Montreal and 4% in Quebec. The decline has only just begun.
The Parliamentary Budget Officer insists that his scenarios should not be considered as forecasts of falling property prices.