We are talking about a ratio of 1 to 4.2.
The figure comes from Stéfane Marion. Using September employment data from Statistics Canada, the chief economist and strategist at the National Bank looks back at the growth of the working age population (15 years and over). Driven by massive immigration, we have been going from record to record for three quarters. The growth in this population amounted to 267,000 in the third quarter, the strongest ever observed, after a surge of 238,000 in the second quarter and 204,000 in the first. “A series of unprecedented records,” he described.
For the housing market, this is a pace that homebuilders simply cannot keep up with. Results: the housing supply deficit reached a record level in the third quarter, with housing started for every 4.2 people reaching working age… compared to a historic ratio of 1 to 1.8.
As an illustration of the scale of the task, the deputy chief economist of the Canada Mortgage and Housing Corporation, Aled ab Iorwerth, recently recalled that a residential stock of more than 22 million housing units will be required. by 2030 to ensure affordability for everyone in Canada. “Reaching this level will require creating an additional 3.5 million homes over the next seven years, on top of those already planned for construction. » According to a rough estimate, this represents an investment of at least 1 trillion dollars.
Elite accessibility
Everything must be put in the perspective of an accessibility to property that has become elitist, the improvement observed recently being still too modest. Robert Hogue, deputy chief economist at the Royal Bank, indicated that the overall measure of accessibility assessed by the institution for Canada, i.e. the share of a household’s income necessary to cover housing costs, has slightly decreased in the second quarter, for the second time in a row. We are talking about a decline of 0.3 percentage points, to 59.5% across Canada. The indicator was at 34% in Quebec, but exceeded 46% in Ottawa and 50% in Montreal, to hover around 80% in Toronto and 97% in Vancouver, close to the worst levels ever seen.
No miracle solution in sight, with high interest rates remaining an obstacle for buyers. “Barring a real estate crisis that would wipe out property values or an unexpected about-face in monetary policy, restoring affordability to property promises to be difficult. » Especially since “it is increasingly difficult to build financially accessible units for the average Canadian, given the soaring construction costs and limited construction capacity,” adds Robert Hogue.
Bond pressures
In the meantime, the housing market must combine these months with tense pressures on the bond market accentuating the effect of central bank monetary austerity on the mortgage rate scale. The movement to shed government bonds, which began in mid-July, which has since accelerated with speeches from central bankers talking about maintaining high rates over a longer period, has pushed borrowing costs to long term at their highest level in a decade, noted analysts, who however see a peak reaching. Bond rates serving as a benchmark for the mortgage market have exceeded the 5% mark in the United States and 4.5% in Canada, pushing the five-year fixed mortgage rate above 6% and the qualifying rate for borrowers above 8%.
Added to this effect on accessibility is the tightening of credit conditions by financial institutions. Which must also be combined with an increase in unrealized losses on bond securities in their balance sheet.
Painful renewal
Also, borrowers face a rather painful renewal. A text from The Canadian Press sums up the situation well. Fixed-rate borrowers are expected to see their payments increase by an average of 14% to 25% next year compared to costs in early 2022. And 20% to 25% in 2025 and 2026. Those on variable rates have already shouldered the burden of higher rates, seeing their average payment increase reach 49% this year.
Borrowers with variable rates but fixed monthly payments – such as a five-year variable – will face the largest increases, some having seen their payments gradually reach the trigger threshold to cover only the interest costs, or even less and fall into the zone negative damping. “People benefiting from these products will experience an expected average increase of 44% in their payments by 2026, as their mortgages are renewed,” continues the text from The Canadian Press.
In response, lenders have notably extended amortization periods. More than 46% of mortgages had payment schedules longer than 25 years in the second quarter. In the largest banks, many loans now extend over a period of more than 30 years.
With all this, more analysts are revising their scenario, moving from stagnation in real estate prices to a decline starting at the end of 2023-beginning of 2024. As for the return of the balance between supply and demand for housing. ..