Home Affordability Declining. Or Is It?
A rise in interest rates (and more to come) is putting the squeeze on housing affordability.
RBC’s Housing Trends and Affordability Report, released last week, said its affordability measure hasn’t been this bad since 1990, and beyond for certain markets.
“RBC’s aggregate measure increased by 1.6 percentage points to 88.4% in the Vancouver area, 1.8 percentage points to 75.9% in the Toronto area and 2.4 percentage points to 65.0% in Victoria,” the report read. “These represented the worst ever levels on record since the mid-1980s in all three markets. No wonder the current generation of local buyers feels overwhelmed — no other generation has faced as much affordability pressure in this country.”
However, a RateSpy.com post by CMT contributor Rob McLister noted that RBC’s survey uses the posted 5-year fixed rate (5.27%) in its analysis as opposed to the discounted rates typically obtained by mortgage borrowers, which are materially lower. Despite having to qualify at the 5-year posted rate, McLister noted borrowers can still qualify at 5-year fixed rates as low as 3.74% at non-bank lenders.
RBC’s report notes that ownership costs to carry a home bought in Q2 2018 would have taken up 53.9% of a typical household’s income vs. 55.4% in 1990.
“But had RBC instead used a more realistic 3.74% rate in Q2 2018, that 53.9% figure would have dropped to 47.3% (we confirmed this directly with RBC),” McLister wrote. “We’re not saying houses are cheap (they’re not, by so many measures). But relative affordability is still materially better than it was 28 years ago.”
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