{"id":2461,"date":"2024-04-02T04:03:58","date_gmt":"2024-04-02T04:03:58","guid":{"rendered":"https:\/\/www.rbc.com\/en\/economics\/2024\/04\/02\/toughest-time-ever-to-afford-a-home-as-soaring-interest-costs-keep-raising-the-bar\/"},"modified":"2025-03-26T04:54:40","modified_gmt":"2025-03-26T04:54:40","slug":"toughest-time-ever-to-afford-a-home-as-soaring-interest-costs-keep-raising-the-bar","status":"publish","type":"post","link":"https:\/\/www.rbc.com\/en\/economics\/canadian-analysis\/canadian-housing\/housing-affordability\/toughest-time-ever-to-afford-a-home-as-soaring-interest-costs-keep-raising-the-bar\/","title":{"rendered":"Toughest time ever to afford a home as soaring interest costs keep raising the bar"},"content":{"rendered":"<ul class=\"disc pad-l\">\n<li><strong>High interest rates propelled ownership costs to new summit in the fourth quarter of 2023:<\/strong> A household earning a median income needed to spend a staggering 63.5% of it to cover the costs of owning an average home at market price. That\u2019s up from 61.8% in the third quarter.<\/li>\n<li><strong>Soaring interest costs more than offset a slight price relief nationwide:<\/strong> The monthly mortgage payment for the composite home (valued at $796,300) increased more than $125 (3.3%) last quarter to $3,990. This rise occurred despite the composite home price easing 0.5% q\/q.<\/li>\n<li><strong>Affordability worsened in all markets we track:<\/strong> Vancouver, Victoria and Toronto experienced the biggest deterioration, further exacerbating acute stress. The situation also became more challenging in Ottawa, Montreal and Halifax, where affordability is at, or near all-time worst levels.<\/li>\n<li><strong>Anticipated Bank of Canada pivot brings hope for some respite:<\/strong> We see the growing likelihood of rate cuts starting mid-year as a turning point for housing affordability in Canada. We expect lower borrowing costs will restore some of the massive losses during the pandemic. Any improvement over the coming year, though, is poised to be modest and leave budget-constrained buyers wanting.<\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.rbc.com\/en\/economics\/wp-content\/uploads\/sites\/23\/2025\/03\/income_household_v2.jpg\" alt=\"\" width=\"2433\" height=\"325\" class=\"alignnone size-full wp-image-57081\" \/><\/p>\n<div id=\"everviz-PFhye6iZV\" class=\"everviz-PFhye6iZV\"><script src=\"https:\/\/app.everviz.com\/inject\/PFhye6iZV\/?v=7\" defer=\"defer\"><\/script><\/div>\n<hr \/>\n<h2 class=\"title-text\">House hunters\u2019 budget still heavily constrained<\/h2>\n<p>The Bank of Canada\u2019s historic rate hiking campaign launched in March 2022 continues to weigh heavily on our country\u2019s housing market despite pausing since summer. High rates have intensified stress for many mortgage holders contending with substantial payment increases at term renewal time.<\/p>\n<p>Importantly, high rates have seriously crimped house hunters\u2019 purchasing budget. We estimate they\u2019ve shrunk the maximum budget for a household with a median income ($85,400 at the end of 2023) by 22% since the first quarter of 2022 to just under $500,000 (assuming a 20% down payment and 25-year amortization period). Home prices, meanwhile, have fallen just 1.8% over the same interval. It\u2019s no wonder homebuyer demand has cooled so much. The ability of many Canadians to get into the housing market has greatly diminished.<\/p>\n<p>And it\u2019s no surprise many sidelined house hunters are eagerly awaiting rate cuts. The rollback of earlier hikes will help restore some buying power and narrow the gap with market prices\u2014provided the latter don\u2019t rise too rapidly.<\/p>\n<div id=\"everviz-m1yL4j2h7\" class=\"everviz-m1yL4j2h7\"><script src=\"https:\/\/app.everviz.com\/inject\/m1yL4j2h7\/?v=1\" defer=\"defer\"><\/script><\/div>\n<h2 class=\"title-text\">Improving outlook for affordability<\/h2>\n<p>We expect Canadian homebuyers will get their wish by the middle of this year. An improvement in affordability could in fact come sooner if long-term interest rates ease ahead of our central bank policy pivot and household income continues to grow at a solid clip. The outlook will brighten the deeper the Bank of Canada\u2019s cuts get next year.<\/p>\n<div id=\"everviz-hinFTzBMr\" class=\"everviz-hinFTzBMr\"><script src=\"https:\/\/app.everviz.com\/inject\/hinFTzBMr\/?v=5\" defer=\"defer\"><\/script><\/div>\n<h2 class=\"title-text\">Yet, conditions will remain extremely challenging for a (long) while<\/h2>\n<p>The scope for improvement in the year ahead\u2014while sufficient to rekindle some buyers\u2019 enthusiasm\u2014will be small relative to dramatic loss of affordability that occurred during the pandemic. Under our base case scenario, the share of an average household income needed to cover ownership costs would only fall to mid-2022 levels by 2025. That would scarcely lower the bar for most potential buyers. Meaningfully restoring affordability will likely take years in many of Canada\u2019s large markets. In this context, we expect the housing market\u2019s recovery to be slow at first, before gaining momentum as interest rate cuts accumulate. See <a href=\"https:\/\/thoughtleadership.rbc.com\/canadas-housing-market-outlook-a-tale-of-two-halves-in-2024\/\">Canada&#8217;s housing market outlook: A tale of two halves in 2024<\/a> for our latest forecast.<\/p>\n<h2 class=\"title-text\">Victoria \u2013 Buyers, some owners feel the squeeze<\/h2>\n<p>Extreme unaffordability pressures got even worse in the closing months of 2023. RBC\u2019s aggregate affordability measure for Victoria surged another 4.0 percentage points in the fourth quarter to a record-high 80.2%. (A rise in the measure represents a loss of affordability.) Those pressures weigh heavily on market in the early stages of 2024, restraining the recovery in demand and driving prices down\u2014albeit just barely. Existing owners may also be feeling the squeeze, with some of them opting to sell. New listings\u2014while far from excessive\u2014have trended above pre-pandemic levels since fall. This has contributed to a softening in demand-supply conditions of late. We expect prices will stay on a slight downward trajectory in the near term.<\/p>\n<h2 class=\"title-text\">Vancouver area \u2013 In full-blown crisis<\/h2>\n<p>The prospects for buying a home have long been challenging in the area. They\u2019re now at full-blown crisis levels. It\u2019s never been as expensive to own a home anywhere, anytime in Canada as it was in Vancouver in the fourth quarter. At a staggering 106.4%, the share of a median income needed to cover ownership costs (RBC\u2019s aggregate affordability measure) means that only a select few high-income earners can afford to buy\u2014or that considerable wealth must be amassed (or received) to put down towards a purchase. This significantly narrows the potential pool of buyers in the market, keeping activity soft and prices flat recently. We see little change from this in the months ahead.<\/p>\n<h2 class=\"title-text\">Calgary \u2013 Loss of affordability could dampen market vigour<\/h2>\n<p>Calgary is Canada\u2019s current housing hotspot. Resale activity in the area is buzzing and prices are appreciating at the fastest pace in the country. Still, it\u2019s becoming increasingly hard for many buyers to afford a purchase. RBC\u2019s aggregate affordability measure has deteriorated materially over the past three years, reaching at the end of 2023 its worst level (48.3%) since 2007. With solid momentum in the provincial economy and explosive population growth, the deterioration isn\u2019t undermining the market\u2019s vibrancy for now. But it could put a damper on the recovery going forward if the worsening trend persist.<\/p>\n<h2 class=\"title-text\">Edmonton \u2013 Conditions erode but remain generally manageable<\/h2>\n<p>A positive economic and demographic backdrop is also taking precedence over the erosion of buyers\u2019 purchasing power in the Edmonton market at this stage. Transaction activity is historically strong and trending higher still. And, after a few bumps late last year prices have been picking up so far this year. Homeownership costs\u2014while broadly manageable\u2014have become more onerous for potential buyers. They represented 36.8% of a median household income in the fourth quarter\u2014a 13-year high. We expect upcoming interest rate cuts will keep conditions from deteriorating further and the market energetic in the period ahead.<\/p>\n<h2 class=\"title-text\">Saskatoon \u2013 High rates cast a shadow over buyers<\/h2>\n<p>The market maintains strong momentum, if moderating somewhat since summer. Home resales in recent months hovered some 20% above pre-pandemic levels. High interest rates cast a darkening shadow over buyers, though. The costs of owning a home have soared to levels unseen in 15 years in the area. RBC\u2019s aggregate affordability measure climbed in seven of the last eight quarters\u2014including in the last three. It rose 1.6 percentage points in the fourth quarter to 37.8%. We think increasingly budget-constrained buyers are poised to push back against any appreciation in prices in the near term.<\/p>\n<h2 class=\"title-text\">Regina \u2013 Relatively light housing cost burden keeps market humming<\/h2>\n<p>The volume of resale transactions has significantly recovered since spring last year, and is almost back to where it was before the Bank of Canada began hiking rates in March 2022. Area buyers aren\u2019t immune to mounting affordability tensions but the burden they face is one of the lightest among the markets we track. RBC\u2019s aggregate measure stood at 30.4% last quarter\u2014bested only by St. John\u2019s 28.7%. A fall in home prices helped cushion the impact of higher rates in 2023. A tightening in demand-supply conditions since fall, though, points to a change in direction for property values in the period ahead.<\/p>\n<h2 class=\"title-text\">Winnipeg \u2013 Budget tensions keep buyers on their toes<\/h2>\n<p>Last year\u2019s recovery has stalled. Home resales are stuck in a middle gear, running roughly 10% below pre-pandemic levels. And prices have edged slightly lower since fall. High interest rates and the area\u2019s deteriorating affordability picture is no doubt on the mind of many potential buyers. RBC\u2019s aggregate measure last quarter rose to its worst level (32.8%) in more than 30 years. We expect budget-related tensions will keep buyers on their toes for some time to come. This won\u2019t be an environment conducive for meaningful price gains.<\/p>\n<h2 class=\"title-text\">Toronto area \u2013 Intense stress isn\u2019t letting up<\/h2>\n<p>Skyrocketing interest costs continue to significantly challenge Toronto-area buyers\u2014many of whom confined to the sidelines, unable to clear the extremely high ownership bar. RBC\u2019s aggregate affordability measure reached its worst level ever in the fourth quarter (84.8%). The immense burden it represents ultimately restrain home resale activity to historically low levels and weigh on prices. The market nonetheless appeared to turn a corner in the late stages of 2023 and early-2024 with activity picking up slightly and prices stabilizing. We expect any recovery will be slow and potentially bumpy at first, however. It will take several rate cuts to unlock pent-up demand in a material way.<\/p>\n<h2 class=\"title-text\">Ottawa \u2013 Buyers face an uphill battle<\/h2>\n<p>The action has picked up from the cyclical low point in the fall but remains far from robust. Home resales early this year were still nearly 15% below their levels just before the pandemic. Buyers face an uphill battle getting in the market with high rates and prices crushing their ability to afford a home. RBC\u2019s aggregate measure reached 49.9% in the fourth quarter\u2014a record high for the area. Having their hands tied this way, many buyers aren\u2019t in a position to bid up prices, if they can bid in the first place. It\u2019s no surprise then that property values have drifted lower since fall. We expect this trend will continue in the near term.<\/p>\n<h2 class=\"title-text\">Montreal area \u2013 Market on a gradual upward trajectory<\/h2>\n<p>The market recovery got back in gear in the early months of 2024 after going into reverse in the fall. An influx of supply\u2014new listings have recently rebounding above pre-pandemic levels\u2014may be behind the pick-up in activity. It offers more buying opportunities for house hunters whose purchasing power is significantly curtailed by high interest rates. RBC\u2019s aggregate affordability measure was at a record high of 53.3% in the fourth quarter, a level limiting the pool of potential buyers. This explains the persistent lackluster demand despite the recovery. Home resales remain still more than 25% below their levels before the pandemic. We expect the market to stay on a gradual upward trajectory.<\/p>\n<h2 class=\"title-text\">Quebec City \u2013 Increased strains aren\u2019t holding back activity<\/h2>\n<p>Affordability conditions are the most straining in decades but still compare favourably with most markets we track. At 35.7%, RBC\u2019s aggregate measure is just slightly more than half the Canadian average. Clearly, higher ownership costs aren\u2019t hold back buyers much, or at all at this stage. Transactions continue to run well above year-ago levels and generally low inventories are keeping prices on an incline. We see little that will change these trends in the period ahead.<\/p>\n<h2 class=\"title-text\">Saint John \u2013 Slow, bumpy ride<\/h2>\n<p>Like elsewhere in Canada, the Saint John market is feeling the pinch from higher interest costs. Home resales have slowed markedly since early-2022 and showed some volatility of late. Their levels are running some 20% below where they were before the pandemic. Housing affordability isn\u2019t terrible\u2014it\u2019s still one of the best among the markets we track\u2014but has deteriorated markedly in the past two years, hitting its worst point in decades at the end of 2023. RBC\u2019s aggregate measure rose 1.3 percentage points to 31.4% in the fourth quarter. Home prices have come under downward pressure in recent months and we see this likely to continue in the near term.<\/p>\n<h2 class=\"title-text\">Halifax \u2013 Record-high ownership costs are a major hurdle<\/h2>\n<p>The recovery may be on but action remains quiet in Halifax. The volume of transactions at the start of 2024 was still down more than 25% compared to (strong) pre-pandemic levels. Record-high ownership costs are no doubt the issue. RBC\u2019s aggregate measure jumped to 45.3% in the fourth quarter\u2014far exceeding the long-run average of 31.9%. These high costs significantly constrain the number of buyers and their budget. Home prices have slipped as a result in recent months. We expect they will continue to do so in the coming months.<\/p>\n<h2 class=\"title-text\">St. John&#8217;s \u2013 Slumping supply is the bigger deal<\/h2>\n<p>Low supply is probably a bigger deal for the market than poor affordability at this stage. New listings and inventories have slumped near decade lows lately, leaving many buyers starved for more options. It\u2019s not to say ownership costs aren\u2019t pinching. It\u2019s just that the pressure is lighter than in any other markets we track. RBC\u2019s aggregate affordability measure was a nationwide low of 28.7% in the fourth quarter\u2014and not far off its long-term average of 26.3%. While calmer than at the pandemic peak, the market remains much busier than at almost any time before 2020. We see the current upward sloping price trend persisting in the period ahead.<\/p>\n<hr>\n<h4><b>Read the full Housing Trends and Affordability report for extensive market-by-market analysis.<\/b><\/h4>\n<div class=\"rds-callout-white\" style=\"border: 1px solid #c4c8cc;\">\n<div class=\"rds-gcw\">\n<div style=\"display:inline-block; vertical-align: top;\" class=\"img w-mob-100\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.rbc.com\/en\/economics\/wp-content\/uploads\/sites\/23\/2025\/03\/econ-download-1.png\" alt=\"\" width=\"261\" height=\"177\" class=\"aligncenter size-full wp-image-30186\" \/><\/div>\n<div class=\"rds-inline pad-hlf\" style=\"display:inline-block; vertical-align: top;\">\n<h4 class=\"mar-t\">Read full report<\/h4>\n<p><a class=\"btn tertiary\" role=\"button\" href=\"https:\/\/www.rbc.com\/en\/economics\/wp-content\/uploads\/sites\/4\/2024\/11\/Housing_trends_mar2024.pdf\" target=\"_blank\" rel=\"noopener noreferrer\" data-dig-id=\"TNL_211007\" data-dig-category=\"TNL Economics\" data-dig-action=\"mid-funnel click\" data-dig-label=\"Housing Affordability - Dec 2023\">Download<\/a>\n<\/div>\n<\/div>\n<\/div>\n<p>\u00a0<\/p>\n<style class=\"advgb-styles-renderer\">h2.title-text{font-size: 2.8rem;font-weight: 400;line-height: 1.2;}.chart-title {font-weight: 500; color: #006ac3!important;text-align: center;line-height: 1.2;margin: 40px auto 5px auto;font-size: 25px;}.chart-subtitle{font-weight:500;text-align:center;color:#899299;font-size:18px;}.source-text {font-size: 14px;text-align: center;line-height: 1.2;}.foot-note {font-size: 14px;line-height: 1.2;}<\/style>\n","protected":false},"excerpt":{"rendered":"<p>High interest rates propelled ownership costs to new summit in the fourth quarter of 2023: A household earning a median income needed to spend a staggering 63.5% of it to cover the costs of owning an average home at market price.<\/p>\n","protected":false},"author":265,"featured_media":2459,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"advgb_blocks_editor_width":"","advgb_blocks_columns_visual_guide":"","footnotes":""},"categories":[83,38,46],"tags":[],"rbc_econ_content_type":[],"class_list":["post-2461","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-canadian-analysis","category-canadian-housing","category-housing-affordability"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.2 (Yoast SEO v27.2) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Toughest time ever to afford a home as soaring interest costs keep raising the bar - RBC Economics<\/title>\n<meta name=\"description\" content=\"High interest rates propelled ownership costs to new summit in the fourth quarter of 2023: A household earning a median income 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