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Affordability erodes

Housing affordability in Canada is strained and getting worse.

In its latest look, National Bank Financial found that affordability deteriorated in the fourth quarter for the 14th three-month period in a row.

As The Globe and Mail’s Janet McFarland reports, major Canadian banks have just trimmed the posted rate for five-year, fixed-term mortgages, by 15 basis points, easing some of the issue on that front.

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We’ll see how the first quarter plays out after those cuts. But as 2018 was winding down, higher borrowing costs were eating into affordability, notably in inflated markets such as Victoria, Toronto and Vancouver.

“All but two markets experienced a deterioration stemming from a 20-basis-point increase for residential mortgage rates, hitting harder the priciest markets in the country,” said National Bank deputy chief economist Matthieu Arseneau and economist Kyle Dahms.

“Financing costs were up for a sixth consecutive quarter, which marked the longest streak of rises since the period of [1999-2000],” they added.

The two markets where affordability actually eased were the oil-hit Alberta centres of Calgary and Edmonton.

Indeed, according to Mr. Arseneau and Mr. Dahms, housing affordability is now so nasty that:

1: Mortgage payments on a representative home, expressed as a percentage of income, climbed 1.4 percentage points in the quarter.

2: Home prices rose 0.9 per cent from the third quarter on a seasonally adjusted basis.

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3: The benchmark five-year mortgage rate increased 20 basis points, while median household income also gained 0.2 per cent.

4: An eye-popper, this: In Vancouver, the measure for homes not including condos “crossed the psychological threshold of 100 per cent, as it would now require 101.5 per cent of pretax median household income to pay for a representative home.”

5: It now takes 340 months to save for a down payment in Vancouver, for a representative home based on a savings rate of 10 per cent, 102 months in Toronto and 34 months in Montreal. The time it takes to save eased in Calgary and Edmonton.

6: Based on average rent and monthly mortgage payments, it’s cheaper to rent a two-bedroom condo than it is to buy.

7: Home prices do not actually appear “extreme” in Canada compared with centres such as Hong Kong, London, New York, Paris, Beijing, San Francisco and Tokyo, based on costs as of last summer.

8: Canadian home prices, having jumped sharply before B.C., Ontario and the federal bank regulator move to hose markets down, are now rising at a far slower pace than in about 20 other countries.

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Here’s a look at some key fourth-quarter statistics for homes not including condos, from the study by Mr. Arseneau and Mr. Dahms:

Housing affordability statistics

City Median price Months of down payment saving Mortgage payment as % of income
Toronto $902,916 111.9 75.8%
Montreal $369,234 37.3 36.5
Vancouver $1,318,768 414.5 101.5
Calgary $494,689 37.4 36.6
Edmonton $422,508 24.7 24.2
Ottawa/Gatineau $428,595 32.7 32.0
Quebec $286,491 27.5 26.9
Winnipeg $321,259 27.7 27.1
Hamilton $598,274 55.3 46.5
Victoria $850,469 124.3 86.2

SOURCE: NATIONAL BANK OF CANADA

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