By Promit Mukherjee
Are you struggling to afford a house in Canada? You're not alone. Economists and real estate agents are predicting that the dream of homeownership may remain out of reach for many Canadians in the near future. Despite expectations of further rate cuts by the Bank of Canada, high home prices and weak spending power are likely to continue to challenge potential buyers.
According to Tony Stillo, director at Oxford Economics, the housing market may not see sustained affordability for at least a decade. Rising interest rates over the past two years have priced many Canadians out of the market, while a surge in immigration has driven up demand and prices.
Although mortgage interest rates have started to ease, with the five-year fixed rate dropping to about 4.75%, the decline has not led to increased home buying activity. Even with lower rates, many potential buyers are still unable to afford a house, especially in expensive markets like Toronto and Vancouver.
Factors affecting housing affordability include house prices, interest rates, and borrower income. Since the start of the pandemic, Canadian house prices have soared by over 30%, while interest rates have also seen significant fluctuations. To return to pre-pandemic affordability levels, house prices would need to drop by at least 10% and mortgage interest costs would have to halve.
In Toronto, home sales are at 20-year lows due to high prices, according to John Pasalis of Realosophy Realty. While interest rates are decreasing, many borrowers still face challenges in qualifying for affordable mortgage rates. The recent government rule change allowing for longer mortgage amortizations aims to make homeownership more accessible, but critics fear it may drive up prices further.
Finance Minister Chrystia Freeland has defended the measure, stating that it will support supply by incentivizing builders to construct more homes to meet the growing demand. As the housing market continues to face challenges, it's essential for potential buyers to carefully assess their financial situation and market conditions before making a purchase.
Overall, the Canadian housing market remains a complex landscape where affordability is a key concern. Aspiring homeowners should stay informed about market trends, seek financial advice, and consider all factors before diving into the real estate market.