Cost of Housing Across Canada Hits 30-Year High, Vancouver Market in ‘Full-Blown Crisis’: RBC

A sign advertises a home sold in Vancouver. The city’s skyrocketing housing market has sidelined most home buyers, says a new report. The Canadian Press/Jonathan Hayward

Canada’s housing affordability is at its worst in more than 30 years with several urban markets struggling to regain their footing and the Vancouver market in a “full-blown crisis,” a new RBC report says.

Despite the likelihood of interest rate reductions later this year, the scope for improvement in the year ahead will be small compared to the dramatic loss of affordability that occurred during the pandemic, according to the report written by RBC assistant chief economist Robert Hogue.

The average Canadian household needed to spend 63.5 percent of its income in the fourth quarter of 2023 to cover the costs of owning a typical market-price home, the report found. And RBC doesn’t expect that trend to change much until 2025.

“Meaningfully restoring affordability will likely take years in many of Canada’s large markets,” Mr. Hogue said. “In this context, we expect the housing market’s recovery to be slow at first, before gaining momentum as interest rate cuts accumulate.”

British Columbia

Several urban housing markets are struggling, the report found, but Vancouver was by far the worst, hitting “full-blown crisis levels” in the last quarter of 2023. The median income needed to cover home ownership in the B.C. city came in at a “staggering” 106.4 percent, significantly narrowing the pool of potential buyers.

“Only a select few high-income earners can afford to buy, or considerable wealth must be amassed (or received) to put down towards a purchase,” Mr. Hogue said, adding that this will keep activity “soft and prices flat” with little change anticipated in the months ahead.

While Victoria isn’t experiencing the level of crisis Vancouver is in, affordability also remains an issue in B.C.’s capital. The share of a median income needed to cover ownership costs sits at 80.2 percent which has weighed heavily on the market so far this year, the report found.

Ontario

In Ontario, many Toronto-area buyers have been sidelined thanks to household incomes that don’t match the high cost of housing. RBC calculated that affordability was at its worst in the previous quarter with average homeowners needing to spend 84.8 percent of their incomes on housing.

“The immense burden it represents ultimately restrains home resale activity to historically low levels and weighs on prices,” Mr. Hogue said. “We expect any recovery will be slow and potentially bumpy at first.”

While the market appeared to “turn a corner” in the latter part of 2023 and early-2024 with a slight increase in activity, it will take several rate cuts to “unlock pent-up demand in a material way,” he said.

Buyers continue to face an uphill battle in the country’s capital city as well, as the market “remains far from robust.” Ottawa home resales early this year sat nearly 15 percent below pre-pandemic levels thanks to high interest rates and home prices.

With average homeowners needing to spend half of their income on a new home “many buyers aren’t in a position to bid up prices, if they can bid in the first place,” Mr. Hogue said.

“It’s no surprise then that property values have drifted lower since fall,” he added. “We expect this trend will continue in the near term.”

Struggling Markets

Housing affordability in Montreal and Halifax is also at or near all-time worst levels as would-be homeowners struggle with pricing in relation to income.

Montreal’s affordability measure hit a record high of 53.3 percent in the final quarter of 2023, creating a lackluster demand in the housing market as home resales remain more than 25 percent below pre-pandemic levels, the report stated.

Would-be buyers also remain on the shelf in Halifax thanks to the high home ownership to income ratio in the Nova Scotian city. It came in at 45.3 percent in the fourth quarter, far above the long-time average of 31.9 percent.

“These high costs significantly constrain the number of buyers and their budget,” Mr. Hogue wrote. “Home prices have slipped as a result in recent months. We expect they will continue to do so in the coming months.”

Long-anticipated Bank of Canada interest rate cuts, which are forecast for mid-2024, won’t bring immediate relief to the housing market, the report predicted.

While rate cuts will make housing more affordable across the country, the market won’t change overnight, Mr. Hogue warned.

“We expect lower borrowing costs will restore some of the massive losses during the pandemic,” he said. “Any improvement over the coming year, though, is poised to be modest and leave budget-constrained buyers wanting.”