There’s a glimmer of hope for Canadians struggling to enter the scorching hot housing market. A recent report by Royal Bank of Canada (RBC) titled “Housing Affordability: The Toughest Time to Afford a Home” acknowledges the current challenges faced by aspiring homeowners but also identifies signs of a potential shift.
The report highlights the crippling impact of rising interest rates, significantly reducing the borrowing capacity of many Canadians. RBC estimates that a household earning the median income (around $85,400 in late 2023) can now afford a maximum of roughly $500,000 for a home. This represents a substantial 22% decrease in affordability since the beginning of 2022, assuming a standard 20% down payment and 25-year amortization period.
To make matters worse, skyrocketing home prices have further strained affordability. The report states that the average home price in Canada now requires a staggering 63.5% of a median household income to cover ownership costs.
Despite the gloomy situation, RBC suggests there might be light at the end of the tunnel. While the report doesn’t predict a housing market crash, it hints at potential cooling measures. A stabilization or slight decrease in housing prices, coupled with a possible pause or even a reduction in interest rates by the Bank of Canada, could improve affordability for homebuyers.
This news comes as a welcome relief for many Canadians who have been priced out of the market. It’s important to remember that RBC’s report is based on projections, and the housing market remains complex. Still, it offers a glimmer of hope for those yearning for homeownership.
