According to National Bank of Canada’s Housing Affordability Monitor Report, housing affordability in Canada experienced a significant decline during the third quarter of 2023. This deterioration marked a reversal from three consecutive quarters of improvement, erasing nearly two-thirds of the progress achieved thus far. The decline was widespread, impacting every market as mortgage payments increased as a percentage of income (MPPI).
Nationally, the degradation resulted from a 4.6% surge in home prices, the most substantial increase in six quarters, partially offsetting the decline observed over the past year. The rise in home prices, especially during a period of increasing interest rates, might seem puzzling initially. However, a persistent shortage of housing supply in the resale market, coupled with record population growth, has fueled the upward trajectory of prices.
Furthermore, the quarter saw a 32 basis points increase in mortgage interest rates, surpassing the declines witnessed in the two preceding quarters and contributing to decreased affordability. Although incomes continued to rise, their impact in mitigating the situation was limited. Looking ahead, the outlook for affordability appears bleak, with expectations of further deterioration in the last quarter of the year.
Mortgage interest rates have steadily increased in October, driven by rising longer-term interest rates. If these rates persist at their current level, a mere 2% increase in home prices during the fourth quarter could surpass the worst level of affordability in a generation. This challenging outlook particularly affects first-time homebuyers.
Here are some highlights of Toronto’s Affordability:
