07/26/2017 13:12 EDT | Updated 07/27/2017 10:00 EDT

Home Affordability Has Actually Improved In 6 Canadian Cities

The difference in mortgage costs from city to city has become a yawning chasm.

It may not be a surprise to hear that home affordability in Canada has deteriorated to its worst level in years, but take heart, future homeowners: A majority of Canada's largest home markets have actually seen some improvement in affordability recently.

That's according to National Bank of Canada, whose latest housing affordability monitor shows affordability getting better in six of the 10 housing markets surveyed.

Sadly, Toronto and Vancouver aren't among them. Those cities continued to see deterioration in affordability.

The cost of a monthly mortgage on a benchmark home in Toronto increased by 3.2 per cent in the second quarter, and now eats up 66 per cent of an average household income in the city. (The numbers don't yet reflect the slowdown in Toronto's housing market that began in the second quarter.)

A row of houses reflected in a pond in Calgary, Alta. Calgary is one of six major cities to see an improvement in home affordability in the second quarter of 2017.

Vancouver's affordability worsened by a slight 0.1 per cent, and it takes 75.1 per cent of an average income to afford the mortgage on a median home in the metro area.

That was enough to bring overall national home affordability to its worst level since 2008, National Bank said, when mortgage rates were much higher than they are today.

But the National Bank data shows that affordability improved in the second quarter in:

  • Montreal, where a monthly payment is down one per cent
  • Quebec City (down 0.9 per cent)
  • Calgary and Edmonton (down 0.8 per cent each)
  • Ottawa (down 0.6 per cent)
  • Winnipeg (down 0.4 per cent).
National Bank of Canada
Six cities — Montreal, Quebec, Calgary, Edmonton, Ottawa and Winnipeg — saw improved home affordability in the second quarter of 2017.

Two things largely explain the improving affordability. One is slightly lower home prices in some of these markets, namely Montreal, Calgary, Edmonton and Quebec City.

The second thing is even lower mortgage rates. National Bank says the quarter saw the lowest benchmark rate on a five-year mortgage on record.

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But that's already over. Canada's major lenders raised their mortgage rates over the past several weeks as the Bank of Canada moved to hike interest rates. Analysts expect two or three more rate hikes at the bank before the end of 2018.

Yawning inequality in mortgage payments from city to city

National Bank economists Matthieu Arseneau and Kyle Dahms note that Canada is seeing "a significant divergence across regions" in its housing markets.

Nowhere is that clearer than in the data showing monthly mortgage payments on an average home. With runaway prices in Toronto and Vancouver and nearby areas, the difference in mortgage payments from city to city has widened to unprecedented levels.

It now takes $4,268 a month to make a mortgage payment on a median-priced home in Vancouver, compared to $1,357 in Montreal. Check out the wild housing affordability inequality that has taken root in Canada:

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To buy an average home in Toronto today, you need nearly three times as income as you would in Montreal, Ottawa or Winnipeg.

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Arseneau and Dahms warn that, in Toronto, even the condo market is moving out of affordability range for many.

"Canadian households have been able to fall back for some time on the condo market which was more affordable on an historical basis," they wrote.

"However, the deterioration in Q2 was more acute in this segment compared to other dwellings. As a result, even the condo market is now the least affordable in years (worst since 2011)."

Recent data from the Toronto Real Estate Board showed that even condos in the region are moving out of affordability range for middle-income earners.

Fortunately, many observers are saying that Toronto's market is "returning to sanity" following the craze of recent years, and that could easily translate into improving affordability in the coming months.

But with price levels so far out of reach, a "sane" market may still be a pricey one.

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