Canada's housing affordability has declined to its lowest level in over 30 years, as stated in a new report released by RBC Economics.
Robert Hogue, chief economist at RBC says that cumulative home ownership expenditures rose to almost half of the median household income in this year's third financial quarter. This represented a two percentage point increase from the previous quarter and a six point increase from last year's third quarter. The bank takes mortgage payments, property taxes and utilities into account when gauging ownership costs.
"The need for more supply has never been greater. This became clearly evident in the past year with bidding wars springing up in places that have rarely or never seen them before, and intensifying in places more accustomed to them. And until demand and supply return closer to balance, prices will continue to rise," Hogue explained.
Vancouver lead the charge with the affordable housing market, where ownership costs amounted to nearly 65 per cent of median household income, up almost a full percentage point from the previous quarter.
In Toronto, home ownership costs made up for just over 60 per cent of the median household income, an increase of 2.7 points from the previous quarter.
In RBC's report, Hogue said the outlook for buyers currently "is grim", especially with the Bank of Canada preparing for an increase on its key interest rate next year. He believes RBC's national affordability indicator could increase another 3.5 percentage points due to higher rates.
"A potentially significant deterioration in affordability could squeeze many buyers out of the market—or at least out of a market or housing category. That would be the market’s self-correcting mechanism at work. So long as supply is slow in coming, much of rebalancing adjustments will fall on the demand side of the equation."
Only St. John's broke the trend in the third quarter, where affordability was unaffected, and home ownership costs make up for a reasonable 22 per cent of median household income.