According to a recent survey, you would need to earn close to $250,000 annually to be able to own a property in Vancouver. A housing disaster that spreads across Canada especially in big urban centres like Vancouver and Toronto. Over a one-month period from July to August, the minimum annual income needed to purchase an average $1.2 million home in Vancouver increased to $246,100.
Many see high interest rates as the result of this unavoidability disaster, yet many don’t mention the real reason why we have unaffordable housing in Canada. The main reason is the high initial buying prices of homes in Canada, not the actual interest rates.
If we can remember the year 2000, the average home price in Vancouver was just $218,240 and average home price in Toronto was just $243,255, in 2023 Canadians can’t buy a single car garage for that price, literally.
Average income in Canada
A one-person household in Vancouver had a median income of $46,400 in 2020, while a home with two or more people had a median income of $112,000, per Statistics Canada.
The average yearly wage in Toronto as of September.2022 is $57,550. That comes out to roughly $27.67 an hour, in case you need a quick pay calculator. This is equal to $4,795 every month or $1,106 per week.
The question arises; who is buying those homes? If median income in Vancouver and Toronto is below $60 000 and the average home price is above $1.2 Mio. who is buying those homes and who is driving home prices up?
Bank of Canada Rates and Market Outcome
In presenting its most recent policy rate decision, the Bank of Canada did not want to convey that it was done raising interest rates or that the cost of borrowing would soon decline, according to documents made public on Wednesday. According to documents made public on Wednesday, when presenting its most recent policy rate decision, the Bank of Canada did not want to convey that it was finished raising interest rates or that the cost of borrowing would soon decline.
Mortgage rate increase did stop the skyrocketing prices but they did not reduce the prices considerably. Prices in Vancouver did fell by $2,300 between July and August 2023, a practically insignificant 0.2% drop that was insufficient to balance higher borrowing rates.
In six cities, including Vancouver, Toronto, Hamilton, Winnipeg, Edmonton, and Ottawa, prices decreased. Only Toronto and Hamilton saw an improvement in affordability as a result of the price reduction.
Yet, those price reductions are very eager to none, not to be considered when talking about affordable housing in Canada. The Bank’s decision-makers chose to underscore the fact that data will determine the future course of rates and to “emphasize their readiness to raise interest rates further if needed.”
According to Statistics Canada’s consumer price index report released on Tuesday, rising gas and housing prices caused the headline inflation rate to surge from 3.3% in July to 4% in August. And these numbers could move Bank of Canada to increase mortgage rates even further.
In other words; there is no major correction without hard fall or hard landing. Decades of mismanaging housing bubble in Canada has created this unaffordable disaster in Vancouver and most of Canada.