Homes in Canada ‘a little easier’ this summer, despite price hikes: Ratehub

Ratehub says housing affordability improved over the summer as the impact of higher mortgage rates was partially offset by a significant drop in home prices. Photograph: Carlos Osorio/Reuters

Housing affordability in Canada improved slightly during the summer months as the jump in borrowing rates was partially offset by a significant drop in home prices, according to price comparison website Ratehub.ca.

The analysis took into account mortgage rates, stress testing and average home prices, and showed that the amount of annual income required to buy a home in 10 major Canadian cities fell overall from June to August.

James Laird, co-CEO of Ratehub.ca and president of mortgage lender Can Wise, said in a statement released Friday.

Toronto saw the biggest improvement, with annual income required to buy a home dropping from $12,550 to $213,950 in August over the two-month period. Ratehub says data from the Canadian Real Estate Association (CREA) showed that the median home price in the city fell $80,300 to $1,124,600 over that time period.

Hamilton, Ont.; In second place, buyers needed an annual income of $167,500 to purchase a property in August, $11,560 less than in June.

In Vancouver, the annual income required to purchase a home was $223,850, down $8,100 in August compared to June.

Ratehub came up with the data using a mortgage assumption with a 20 percent down payment and a 25-year amortization. It also factored in $4,000 in annual property taxes and a $150 monthly heating bill. The mortgage rates used were the average five-year fixed interest rates offered at the five largest banks in Canada.

With interest rates rising, home sales activity declined as buyers stayed on the sidelines. A fall in demand puts downward pressure on property values.

CREA reported that home sales nationwide fell one percent in August from July, marking the sixth consecutive monthly decline.

“August saw national sales stabilize on a monthly basis for the first time since February, which, along with stabilizing demand/supply conditions in many markets, could be an early sign that this year’s sharp adjustment in housing markets across Canada may have Gilles Oudil, President of CREA, said in a press release on September 15: “

“However, some buyers may choose to stay on the sidelines until they see clearer signs of borrowing costs and price stability as well.”

The Bank of Canada raised another 75 basis points this month, raising its benchmark interest rate to 3.25 percent. It warned of more price increases in the future.

Economists at TD Bank and Scotiabank expect the central bank to eventually raise the benchmark interest rate to around four percent.

Laird says that if the Bank of Canada continues to raise interest rates and home prices fall further, affordability will improve. However, if prices rise and housing prices find ground, affordability will fall, he said.

Michele Zadekian is a Senior Correspondent at Yahoo Finance Canada. Follow her on Twitter Tweet embed.

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