By Ketki Saxena
Investing.com -- Recent real estate data has showed declines in housing activity across Canada, including in both Metro (TSX:MRU) Vancouver and the Greater Toronto Area.
Sales declines 44% in Vancouver and 46% in the GTA, as per the Real Estate Board of Greater Vancouver and the Toronto Regional Real Estate Board, while prices in both metro declined marginally (2+%) on the month.
Despite the decline, prices for a home remain eye wateringly high.The average price of a property in Canada was $777,200 in August of this year, while a Greater Toronto Area property came in at $1,086,762. And economists at leading Canadian financial institutions are increasingly calling for worsening housing affordability.
In an interview yesterday with BNN Bloomberg, Benjamin Tal, deputy chief economist at CIBC (TSX:CM) stated that “This market will remain unaffordable to many, many Canadians,", despite the current decline in house prices. “By any stretch of the imagination, this is not the end of the (housing) crisis. This is just the beginning”, he said.
In a report today, TD (TSX:TD) economists also warned of the consequences of housing affordability, noting that “With affordability now at its worst level in decades, the current generation of prospective homebuyers is facing the fate of missing out on housing wealth.” The economists noted that, “Even with the recent correction, the average home price is still 80% higher than 10 years prior and has significantly outpaced employee compensation that’s clocking in at 47%”.
A note from Sal Guatieri, Senior Economist and Director Economics at BMO (TSX:BMO), meanwhile strikes a positive tone in the context of the recent housing data, noting that “Only through lower prices will affordability (as measured by the amount of income required to carry a mortgage) begin to normalize from the worst levels in a generation”
However, the dominant view is that housing affordability is worsening. A report last week from the Parliamentary Budget Officer noted that “Despite the decline and an increase in average household incomes, skyrocketing mortgage rates have "[led] to a significant reduction in the borrowing capacity of Canadian households and a further widening in the house price affordability gap”.
Also last week, RBC (TSX:RY) Economist Robert Hogue wrote in a report that “The Bank of Canada’s rate hiking campaign since March has added hundreds of dollars to mortgage payments that come with a home purchase.” He noted that rising rates, “Along with the jump in property values during the pandemic have made it more difficult than ever to become a homeowner in Canada.” Hogue is also in the camp of those who expect housing affordability to worsen as new and renewed mortgages begin to reflect rate hikes, and as the BoC hikes rates further.
Variable-rate mortgages at Canadian banks, which were at less than 2% at the beginning of the year, are now over 5% and set to rise still further, with the Bank of Canada expected to hike rates another 75 bps this year.