National Bank of Canada Finds Vancouver Affordability At Worst Levels since 1980

Steve Saretsky -

Housing affordability across Canada continues to erode, at least according to the National Bank of Canada and their latest affordability study released earlier this week. Per the National Bank of Canada, the rise of borrowing costs did not prevent a further sharp rise of prices in Vancouver, inching up 2.7% quarter over quarter (seasonally adjusted), leaving this market less affordable than at any time since 1980.

The bank echoes recent findings that the mortgage stress test is starting to bite. With borrowing power being slashed by roughly 20%, the maximum loan amount is down to where it was in 2011 even though interest rates are now 60 bps lower and incomes 17% higher than they were then. Also concluding that about 10% of recent mortgage applicants for uninsured loans would have been disqualified under the new rules.

While this may be discouraging for many Vancouver homebuyers, the old saying “the cure to high home prices is higher home prices” appears to be playing out. The reality is with housing affordability stretched to its limits it has drastically reduced the buyer pool. Many applicants, who either no longer qualify, or simply can’t purchase the home they want at current inflated housing prices, have moved to the sidelines. The National Bank of Canada finds seasonally adjusted home sales dipped to a five-year low in Vancouver. And even worse in the city of Toronto which recorded a 10 year low in the first quarter of 2018.

Vancouver home sales
Vancouver and Toronto home sales seasonally adjusted

With sales grounding to a halt, sellers are facing pressures to slash asking prices. Particularly in the detached housing market where sales fell to a 30 year low in the city of Vancouver for the month of April. The median home price across all dwelling types now sits at $1.089M in Vancouver. Which would consume roughly 80% of the typical income in Vancouver and require a qualifying income of $191,892 under new regulations.

national bank of canada
National Bank of Canada percent of one’s income in Vancouver required for housing

With affordability stretched to its outer limits it should come as no surprise that CIBC one of Canada’s largest players in the residential mortgage space expects new mortgage originations to decline by roughly 50% in the second half of this year. Further the slowdown can be reflected in the balance of residential mortgage credit where the 3-month annualized trend is now at the slowest pace of growth since 2001. Growth slid to 2.2% in April, a 53% decline compared to the same period last year.

Mortgage credit Canada
Source: Better Dwelling

The bank concluded with the rather obvious, “Since we don’t see how Vancouver and Toronto homebuyers could pay a higher share of their incomes for shelter, a downward adjustment of prices is conceivable.”

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

Steve Saretsky -

Consumer price inflation ripped higher in September, surging 4.4% year-over-year, the fastest pace of price increases in 18 years. Let’s discuss this further. We have an inflation problem and the Bank of Canada remains of the view that inflation will be transitory. Although they really can’t say otherwise, for if...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022