The Bank of Canada acknowledges that rising housing costs “remain the largest contributor to overall inflation.” Has the time not come to begin the movement to lower the key rate? From Wednesday?
“The growth in housing costs is problematic with inflation that has been greater than or equal to 6% for nine months. For rent, it’s even worse with an average growth of 8% during this period,” noted CPA Canada’s chief economist, David-Alexandre Brassard, commenting on the inflation data published on May 21. . Tenants are stuck and those who want to access the property are simply caught in a vise.
The results of a survey conducted for the Bank of Montreal released at the end of April indicate that 72% of respondents who hope to buy a house will wait until borrowing costs decrease. Although interest rate reductions are expected in the second half of the year, there is still a long way to go before rates are low enough to return affordability to recent standards, said Robert Kavcic, senior economist at BMO Markets. capital, in a text from The Canadian Press.
As an illustration, we can recall that, according to the Royal Bank’s overall accessibility measure, in Montreal, a household with a median income had to devote a record high of 53.3% of its income to paying the property costs of average housing at current prices in the fourth quarter of 2023. In Quebec, despite a measurement of 35.7%, “accessibility conditions have never been so unfavorable in decades”. In short, “buyers are having difficulty entering the market. Many of them are not able to offer high prices, or even simply present an offer,” underlines the RBC.
According to the institution’s estimates, the maximum budget of a household earning the median income ($85,400 at the end of 2023) devoted to the purchase of a property has decreased by 22% since the first quarter of 2022 to settle just shy of a residential value of $500,000 (assuming a 20% down payment and a 25-year amortization period).
Residential property has never been more inaccessible. In Montreal, at the end of the first quarter of 2024, nearly 48 months of savings for a residential property other than a condo (nearly 31 months for a condo) were necessary for a median-income household to save the down payment. minimum fund allowing the acquisition of representative housing at a savings rate of 10% of income before tax, economists at the National Bank have already calculated. “Only about a third of Canadian income-earning households can afford to purchase a detached home with their earned income alone. This is a striking difference from 2005, when half of Canadians earned enough,” adds the Royal analyst.
Worse for tenants
It’s worse for tenants. In 1999, Canadian renters spent an average of 25% of their take-home pay on housing costs, including utilities, compared to 23% for homeowners. In 2022, this weight reached 29% and 21% respectively.
“Many renters may be unable to access the housing market due to their limited opportunities to save for a down payment,” writes Carrie Freestone, a member of the Royal Bank’s macroeconomic analysis group . She was reminded that homeownership is the primary method of wealth accumulation in Canada, with nearly half of household wealth accumulated over the past three decades due to residential real estate. . Simply put, homeowners have seen their net worth increase from nine times their disposable income to 13 times since the fourth quarter of 2010. For renters, it has increased from 3 to 3.5 times over the same period.
With the combination of government subsidies provided to households during the pandemic and limited spending options behind them, the third quarter of 2023 was a turning point for both homeowners and renters. But the latter have undoubtedly been hit the hardest. “In addition to experiencing a decline in wealth accumulated during the pandemic, renters as a group are once again dissaving […] Collectively, they spent almost 9% more than they earned in household disposable income in 2023, while homeowners saved 7% of their take-home pay,” writes the specialist.
Resignation
It appears from a survey published in February, carried out for the Société d’habitation du Québec and the Professional Association of Real Estate Brokers of Quebec (APCIQ), that the high level of prices is now anchored in the public’s mind. “Households expect to pay on average $440,000 for the acquisition of a primary residence over the coming years. This is a considerable increase of 34% compared to what was reported in 2020.” There is resignation, which does not prevent 64% of respondents from waiting for a drop in interest rates to move on to ‘action. A growing portion is considering delaying their purchase because of the time needed to raise the down payment or obtain the desired financial conditions.
If latent demand remains almost intact, the difficulty remains in making the acquisition project a reality, especially for the first buyers. “With the rise in interest rates, the difficulty is also that of remaining a homeowner, especially for young people,” highlights the APCIQ.