Housing Affordability Hits 41-Year Low, Bank of Canada Index Reveals

Bank of Canada's latest index shows housing affordability in Canada at its worst in over 40 years, driven by soaring prices and mortgage rates.

Housing affordability in Canada has reached its lowest point in over 40 years, according to the Bank of Canada. The housing affordability index, which measures Canadians' mortgage payments and utility costs as a percentage of their income, hit its highest level since 1982 in the last quarter. This significant deterioration is attributed to rising housing prices and mortgage rates.

The National Bank of Canada also reported a notable decline in housing affordability last quarter, marking a step back from three consecutive quarters of improvement. The bank's housing affordability monitor highlighted the impact of high demand from population growth and a chronic lack of housing supply, which offset gains in household income.

In response to the housing affordability crisis, the federal government is planning to reintroduce a catalogue of pre-approved home plans for builders. This initiative aims to rapidly expand the available housing stock in the country, mirroring similar efforts made post-Second World War to accommodate returning veterans.

Looking ahead, the National Bank warned that the affordability situation could worsen in the current quarter, especially with a steady trend upwards in mortgage rates. However, there has been some relief in the bond market, with declining yields on longer-term bonds potentially leading to easing in the mortgage market.

The housing affordability crisis in Canada has reached a critical point, with the Bank of Canada and the National Bank both highlighting the significant deterioration in the last quarter. The federal government's plan to reintroduce pre-approved home plans for builders may offer some hope for addressing the chronic lack of housing supply.