Posthaste: How much income you need to afford a home in Canada right now


Spoiler — it’s less than two months ago

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Good Morning,

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Home prices coming down from lofty heights should be good news for Canadian buyers — too bad mortgage rates are going up at the same time.

The Bank of Canada has raised its key policy rate three percentage points since last March and since then the national composite MLS Home Price Index has fallen 7.4% off its February peak.

Commercial prime lending rates have risen in lockstep, hitting 5.45 per cent after the Bank raised its rate to 3.25 per cent in September.

The rate hikes raise the hurdle of the country’s mortgage stress test, which requires borrowers to qualify for the benchmark rate of 5.25 per cent or their offer rate plus 2 per cent, meaning that some will now be facing a qualifying rate above 7%.

So while home prices come down, borrowing costs go up — if you can even get on that ladder.

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This July, Ratehub.ca calculated the minimum annual income needed to afford a home in Canada’s major cities based on March and June data. At the time even though home prices were coming down, the income required had increased by $18,000 on average.

Ratehub.ca checked back this month to see if anything had changed, and found that home affordability had improved in all 10 cities in data between June and August.

“Homes in every city we looked at are slightly easier to afford than they were two months ago. This is because rates have remained unchanged, while home prices have softened,” said James Laird, Co-CEO of Ratehub.ca and president of Canwise mortgage lender.

Toronto had the biggest bump towards affordability, with the income needed to afford a home falling $12,550 from June to August 2022.

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Mind you, you still need a healthy income.

Home prices in Toronto fell $80,300 between June and August, says Ratehub.ca. In March when the average mortgage rate was 3.14 per cent and the stress test rate 5.25 per cent, the income required to buy a home was $210,750. By July, when the average mortgage rate had risen to 5.21 per cent and the stress rate to 7.21 per cent, the income needed climbed to $226,500. In August, the mortgage rate was at 5.3 per cent, the stress rate at 7.3 per cent, but the income needed had dropped $12,550 to $213,950.

Hamilton saw the next biggest drop, with the required income falling $11,560 to $167,500.

Vancouver’s affordability also improved, with the income needed to afford a house falling $8,100 to $223,850.

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Homebuyers may find this small comfort in markets where property values measured by the MLS home price index still remain above year-ago levels almost everywhere in the country. RBC economist Robert Hogue said in a report that only Kitchener-Waterloo prices have actually declined at this point, down 1.7 per cent. In places like Atlantic Canada prices remain significantly higher, he said.

“For many potential buyers, home purchasing prospects remain grim. The partial reversal of earlier massive price increases is small comfort at a time when sharply higher interest rates cut deeply into affordability,” said Hogue.

Incomes needed to afford a home in other Canadian cities range from $107,570 in Montreal to $105,530 in Halifax to $76,220 in Winnipeg, according to Ratehub.ca’s study. In Ottawa you’ll need to be pulling in $129,980 a year and Victoria, $183,700.

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TRAVEL MANDATES LIFTING SOON Passengers walk through the Calgary International Airport on Monday. The federal government is removing all remaining COVID-19 related travel measures, ending masks on planes, vaccine mandates and the mandatory use of the ArriveCan app, starting Saturday. Airlines, airports, tourism associations and other groups all called for the government to abandon the app and mandates months ago as other countries scrapped similar requirements. Photo by Gavin Young/Postmedia

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  • Federal Reserve Chair Jerome Powell participates virtually in discussion on “Digital Finance” before the Banque de France Conference on Opportunities and Challenges of the Tokenisation of Finance: Which Role for Central Banks?” conference in Paris, France
  • The International Monetary Fund will publish a detailed review report of the Bank of Canada’s transparency practices. The bank will simultaneously publish its response to the report’s recommendations
  • Charmaine Williams, Ontario associate minister of women’s social and economic opportunity; and Peter Bethlenfalvy, Ontario minister of finance, will make an announcement in Ajax
  • Today’s Data: U.S. home price index, new home sales, durable goods orders
  • Earnings: BlackBerry, Lion One Metals, Monarch Mining
     

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Central banks will have to raise rates higher than expected to combat inflation that is becoming increasingly entrenched, the Organisation for Economic Co-operation and Development said Monday in its latest outlook report. The global economic agency said it expects the Bank of Canada to raise rates to 4.5 per cent in 2023 as its inflation rate remains stubbornly above the central bank’s target range of between two and three per cent. The OECD’s forecast of 4.5 per cent inflation next year puts Canada in about the middle of the pack, today’s chart shows, but above the United States.

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While many investors are stampeding to the exits, Dragon’s Den star Kevin O’Leary is looking for opportunities. In fact, today’s volatile markets may be the best time to buy stocks, he says.

“It’s very disheartening to equity markets to lose close to 1,000 points in a matter of 40 minutes,” he told CNBC.

“That means volatility is back. If you’re an investor, maybe the best thing to do here is — since you can’t guess the bottom — is to take opportunities on days like today and buy stocks that you think are attractive.”

Our content partner MoneyWise looks at the sectors O’Leary likes right now.

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Today’s Posthaste was written by Pamela Heaven (@pamheaven), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com, or hit reply to send us a note.

Listen to Down to Business for in-depth discussions and insights into the latest in Canadian business, available wherever you get your podcasts. Check out the latest episode below:

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