Jason Kay

From National Bank of Canada Housing affordability in Canada in the first quarter of 2023 posted a second consecutive improvement. It marked the largest betterment in affordability in nearly 4 years as all markets covered saw a net amelioration (which was a first since 2020Q3). Nonetheless, the reversal of the worsening which occurred in the last two quarters was tepid compared to the slide that has occurred during the post-pandemic period. Indeed, after having reached its most unaffordable level in over 30 years, the mortgage payment as a percentage of income (MPPI) registered at a still elevated 60.9% in 2023Q1, down 5.4 points from the recent high mark. Feeding into the improvement, home prices declined for a third consecutive quarter. The retracement in home prices has now reached -7.3%, the biggest drawdown in a generation due to the restrictiveness in interest rates. The correction in prices was the sharpest in Vancouver, Hamilton and Toronto which translated into the biggest improvements in affordability during the quarter. Still, mortgage interest rates appear to be tapering out. In this latest report, our 5-year benchmark mortgage rate used to calculate affordability declined by 14bps, which helped contribute to the moderation. In addition, we note that still rising incomes also contributed to the enhancement. Looking ahead, for the second quarter of 2023, we expect a slight easing of pressure on the interest rate side. That said, a stabilization in home prices is likely given the pickup in activity with sales increasing while listings have moderated. However, we have doubts as to whether this price rise will be sustained, given restrictive monetary policy which is contributing to maintaining affordability at a challenging level. HIGHLIGHTS: Canadian housing affordability posted the largest improvement in 15 quarters in Q1`23. The mortgage payment on a representative home as a percentage of income (MPPI) declined 3.2 points, a consecutive pullback following the 2.2-point decrease in Q422. Seasonally adjusted home prices decreased 2.4% in Q123 from Q422; the benchmark mortgage rate (5-year term) fell 14 bps, while median household income rose 1.3%. Affordability improved in all ten markets covered in Q1. On a sliding scale of markets from best improvement to deterioration: Vancouver, Hamilton, Toronto, Victoria, Montreal, Winnipeg, Ottawa-Gatineau, Calgary, Edmonton, and Quebec. This was the first time in 10 quarters that all markets improved. Countrywide, affordability improved 1.8 pp in the condo portion vs. a 3.8 pp improvement in the non-condo segment. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/housing-affordability.pdf