The cost of owning a home in Canada is at the highest level in 28 years and likely to get only more onerous as interest rates continue to rise, according to a report from Royal Bank of Canada.
Carrying a home, including the cost of a mortgage, property taxes and utilities, took up 54 per cent of a typical household’s pre-tax income in the second quarter, the Toronto-based bank said in a report on Friday. That’s up from 43 per cent three years ago.
“From overheating to correction to the onset of recovery, we’ve seen pretty much everything in the past three years in Canada’s housing market,” economists at the Toronto-based bank said in the report. “Yet an eye-watering loss of affordability has been a constant.”
Unaffordability is “off the charts” in Vancouver, Toronto and Victoria, with RBC’s index at 88 per cent, 76 per cent and 65 per cent respectively -- the highest in records going back to the mid-1980s. The measure uses an aggregate of all housing categories, including single-family detached homes and condos.
While rising prices had been the culprit behind the loss of affordability between 2015 and 2017, mortgage-rate increases accounted for the entire rise in carrying costs over the past year, the bank said. The country’s central bank has risen interest rates four times since July, 2017.
“We expect the Bank of Canada to proceed with further rate hikes that will raise its overnight rate from 1.50 per cent currently to 2.25 per cent in the first half of 2019,” the report said. “This will keep mortgage rates under upward pressure and boost ownership costs even more across Canada in the period ahead.