Amid the federal government’s pledges to ensure better affordability and a vigorous pace of new housing construction over the next few years, the Prime Minister has admitted that home prices have climbed ‘far too high’ for most Canadians.
Housing costs have become a major social issue and a political problem for the Prime Minister.
Data from the Canadian Real Estate Association showed that the actual non-seasonally adjusted national average home price, went up by 6.3% on a monthly-basis in July, reaching $668,754. The federal government also reported that the benchmark home price has reached $755,000.
Across 10 large cities, mortgage payments eat up about 59% of household earnings, says the economists at the National Bank of Canada. The calculation is based on payments for mortgages that are amortized over 25 years. Many Canadians now have longer loans to reduce their monthly cash outflow.
At the same time, Canada’s housing supply continues to struggle under the weight of perennial supply shortages – a trend that has been aggravated by the government’s target to welcome at least 465,000 new permanent residents this year, ramping up to 485,000 in 2024 and then 500,000 annually beginning 2025.
An economist for the Canada Mortgage and Housing Corporate (CMHC) says the country would need approximately another 3.5 million housing units, in order to meet 2004 levels of affordability, or the share of after-tax income that a household with an average income would need to buy an average home.
Affordability crisis not likely to abate any time soon
Senior economist and director of economics at BMO, has expressed some skepticism, towards Canada’s housing affordability prospects.
Relief will come only, if interest rates fall sharply and prices lag incomes for a lengthy period, he said in his recent analysis. With many markets swinging back towards balanced conditions after a brief fling in seller’s territory, prices could move sideways for the next half year, which will help.
Buyers won’t see meaningful relief until the Bank of Canada eases policy, possibly starting next spring, he stressed.
While immigration to Canada is currently higher than forecast, the CMHC says the number of households required to achieve affordability will not be significantly higher in 2030, compared to its previous projection. Many factors drive up demand for housing, including immigration, but also rising incomes and lower interest rates.
Original article: www.mpamag.com
