Canadian housing affordability just saw its biggest improvement in 5 years

National Bank’s latest study of 10 major Canadian housing markets suggests affordability improved in the first quarter of the year as income growth outpaced home prices — and it looks like more relief is on the way.

“The healthy labour market was the largest contributor to this development via a significant increase in income,” write National Bank economists Matthieu Arseneau and Kyle Dahms in a report.

“Coincidentally, mortgage rates were not a drag on affordability for the first time in 7 quarters,” they add.

Incomes increased by a full percentage point, while home prices inched up 0.3 points.

“Looking ahead, there is hope for further improvement in affordability in Canada in Q2 given the recent drop in mortgage rates,” the economists forecast.

One way National Bank measures housing affordability is by looking at what share of household income is eaten up by mortgage payments for a typical home.

In the first quarter, 48.7 percent of a median-earning household’s income would be required to afford mortgage payments on a Canadian home. The measure does not take downpayments into account.

While still high — experts suggest spending no more than a third of income on housing costs — that’s a decline of 0.7 percentage points from the last quarter of 2018.

national bank chart

It was the most significant quarterly improvement since 2014, Arseneau and Dahms note.

Homing in on Canada’s most unaffordable markets, there were also improvements.

In Vancouver, pressure eased in both the condo and non-condo (detached and semi-detached homes) corners of the market.

A typical Vancouver household in the first quarter needed to put 49.8 percent of its income to service a mortgage on a normal condo, down half a percentage point, quarter-over-quarter.

“This was the first improvement in 15 quarters for the condo segment,” the National Bank economists point out.

For a house, the improvement was even more pronounced, at 2.5 percentage points. The downside is mortgage payments would require 101.1 percent of a household’s income, meaning homebuyers in the median-income bracket are still completely priced out of the market.

Meantime, in the country’s second-most-expensive-market, Toronto, houses became more affordable while the measure worsened for condos, something that didn’t happen anywhere else last quarter.

Monthly mortgage payments for a detached or semi-detached house amounts to 67.3 percent of a median household income, down 0.4 percentage points compared to Q4.

Condos remain more affordable, requiring 40.3 percent of a household’s income to service a mortgage, but that’s up 0.1 percentage points versus last year.

“Among all segments and regions covered, the condo segment in Toronto was the only deterioration in the first quarter of 2019,” reads the National Bank report.

Josh Sherman