The last few months have seen a dramatic correction in housing prices. However, as a home buyer, the interest rate hikes have meant that your mortgage payments are eating away at your ability to pay your other expenses and to save.
Canadian housing affordability has reached the worst point it’s ever been. A household now requires 60% of its income just to service a mortgage in Q2 2022. It surpasses the previous record of 57% hit in the 90s, and that’s just at the national level. The bank warned it’s even worse in Canada’s largest cities.
That's the bad news, however, there is some positive news on the horizon. While sellers are seeing longer wait times for their homes to sell analysts see the current housing prices drop to usher in a better situation for affordability.
According to RBC:
Periods of such extreme unaffordability don’t typically last for long, and RBC emphasized that point. They expect home prices will lower the pressure on budgets, more than reversing the climb of higher interest rates. “We expect benchmark prices to fall 14% nationwide by next spring— more so in Ontario and BC,” said Hogue.
As with all downturns in the economy, the inevitable stabilization of an upturn will bring affordability back to the housing market. The interest rate hikes will bring about a correction in the housing market that many believe is overdue:
Towards the end of next year, they expect affordability will have improved significantly due to price declines. However, things will get worse before they get better. “… the likelihood of further rate hikes from the Bank of Canada is poised to intensify affordability pressures before then,” warned the bank.
Restoring affordability and a healthy market should be the highest concern, to preserve the long-term viability of the market.
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