Housing affordability improves thanks to lower rates, higher incomes

Canadian housing affordability improved for a third consecutive quarter in Q3, according to National Bank of Canada. 

In its latest Housing Affordability Monitor, the bank said the mortgage payment on a representative home as a percentage of income (MPPI) dropped 2.2 percentage points in the third quarter, following a decline of 3.5 points in Q2 — the largest decline since 2009 — and 0.7 points in Q1.

“The most significant factor to this development was the decline in mortgage rates,” the report stated, noting that the “free-fall in financing costs” over the past nine months — during which time rates have fallen by 87 basis points (bps) — has been the most substantial since 2012.

The benchmark mortgage rate fell by 36 bps in Q3, while median household income grew by 1.1%. (Income has grown by a “whopping” 5.1% in the first three quarters of 2019, the report noted.) Home prices were relatively stable in Q3, rising by 0.1%.

Toronto, Hamilton, Vancouver and Victoria posted the biggest improvements in affordability, while Winnipeg and Montreal saw modest improvements. No markets showed a deterioration in affordability. 

In Toronto, the affordability of both condo and non-condo units continued to improve (with MPPI falling by 1.5% and 2.6% quarter over quarter, respectively) but the MPPI for both remained higher than historical averages. Home prices were up 2.9% on an annual basis.

Vancouver is now at its most affordable level since 2016, according to the report. Condo affordability was back to its historical average, with the MPPI dropping 4 points to 41.6%. Affordability of non-condos also improved, with the MPPI falling 9.1 points to 83.9%. Home prices were down 7.4% year over year.  

Read the full report from National Bank of Canada.

Maddie Johnson

Maddie is a freelance writer and editor who has been reporting for Advisor.ca since 2019.