Unaffordable Canadian homes get snapped up by eager buyers

Canadian house prices continue to soar higher in April, making this epic housing bubble a story for the record books.

While affordability has been stretched for several years now, with annual price gains of 20 percent fewer and fewer Canadians can buy houses based on income.

How can people afford to chase prices ever higher?

The short answer is that most Canadians cannot afford to buy homes. When we look at the largest cities the income required to qualify is much too high.

Better Dwelling calculated the minimum income required:

 

 

 

Vancouver stands out as the most unaffordable place requiring over $200,000, with Toronto not far behind.

Calgary and Edmonton are more affordable because house prices are lower. Demographia shows the average household income in Edmonton and Calgary is close to $100,000. Winnipeg and Quebec are quite reasonable.

However, in Vancouver and Toronto, incomes are lower ­at about $70,000 to $75,000, less than 1/10 of the home price.

In Vancouver and Toronto the population is older, with more retired people on lower incomes. In Victoria, most people bringing money with them from the sale of a home elsewhere. So they do not have huge mortgage payments, for the most part.

And somehow everywhere in Canada some people are still buying.

RBC on May 17 notes the record amount of home resales:

 

 

 

Since there are about 9 million owner-occupied homes and condos in Canada this represents annual turnover of about 9 percent, partly as a rebound from low levels in 2020. It would be unusual if it remained at this elevated level as the average turnover rate is about 5 percent.

An RBC survey showed that 41 percent of renters in BC, under 40, believe they will never own a home.

And what happens if prices keep rising at double digit rates when most Canadians can no longer afford to buy?

Of course, a healthy housing market requires a steady supply of first-time buyers to replace people who move to senior accommodation. According to US-based Pew Research, movement out of homes accelerates once people reach 65 years. The median baby boomer is 66 this year, and the youngest boomer will turn 60 in 2024. Can young people afford to buy the homes of baby boomers?

Affordability is stretched:

 

 

 

Average Canadian ownership costs are 55 percent of income, while it is much higher in Toronto at 67 percent and Vancouver at 78 percent.

The only thing that keeps this housing market going is people willing to speculate on higher prices, often with Mom and Dad helping with down payments and/or co-signing mortgages.

Canadians have become accustomed to paying 60 percent of income to own housing, without realizing how unsustainable that amount of debt is compared to historical norms.

The cure for this housing mania is much lower house prices as incomes can only move higher very slowly.

And lower prices could trigger a financial crisis for highly indebted homeowners and their co-signers, not to mention the lenders.

 

Hilliard MacBeth

 

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