House Price Assessment: A Borrowing Capacity Perspective

Highlights

• Beginning in 2015—and prior to the pandemic—house prices in several cities (Hamilton, Toronto, Ottawa, Victoria, Halifax and Vancouver) “de-linked” from household borrowing capacity, rising 20 per cent, or higher, above affordable prices.

• Household borrowing capacity increased during the pandemic due to lower interest rates and COVID-19 financial support. However, further increases in house prices far outpaced gains in borrowing capacity, resulting in wider gaps in affordability.

• At the end of 2021, the average house price nationally was $811,700—an increase of 43 per cent from December 2019 and a 97 per cent increase compared to January 2015.

• We estimate that in December 2021, average house prices in Hamilton, Toronto, Halifax and Ottawa were more than 50 per cent above affordable levels, based on household borrowing capacity.

• While approximate, our results suggest that household financial vulnerability is elevated in several cities for households that have recently purchased homes.

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Communications

Quotes

• Just prior to the pandemic, the average house price in Canada at the end of 2019 was $565,800—an increase of 37% from January 2015. Population increases sharply outstripped housing completions, which suggests that supply was not keeping pace with demand.

• At the end of 2021, the average house price nationally was $811,700—an increase of 43% from December 2019 and a 97% increase compared to January 2015. Our estimates indicate that in December 2021, average house prices in Hamilton, Toronto, Halifax and Ottawa were more than 50% above affordable levels for households earning average incomes.

• Our results suggest that household financial vulnerability is elevated in several census metropolitan areas for households that have recently purchased homes, indicating that increases in interest rates will further stretch their finances.

Infographic

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News Release

{"id":28,"created_at":"2022-02-16T14:02:13-05:00","updated_at":"2022-02-17T08:59:06-05:00","slug":"pbo-releases-its-house-price-assessment-le-dpb-publie-son-evaluation-des-prix-des-proprietes","title_en":"PBO releases its House Price Assessment","title_fr":"Le DPB publie son \u00e9valuation des prix des propri\u00e9t\u00e9s","body_en":"The Parliamentary Budget Officer (PBO) today released his [House Price Assessment](https:\/\/www.pbo-dpb.gc.ca\/en\/blog\/news\/RP-2122-029-S--house-price-assessment-borrowing-capacity-perspective--evaluation-prix-proprietes-un-portrait-capacite-emprunt). The report provides an assessment of house prices relative to a household\u2019s capacity to borrow and pay for the purchase of a house in selected Canadian cities.\n\nThe PBO report finds that beginning in 2015 house prices in several cities (Hamilton, Toronto, Ottawa, Victoria, Halifax and Vancouver) \u201cde-linked\u201d from household borrowing capacity, rising 20%, or higher, above affordable prices, prior to the pandemic. \n\n\u201cJust prior to the pandemic, the average house price in Canada at the end of 2019 was $565,800\u2014an increase of 37% from January 2015. Population increases sharply outstripped housing completions, which suggests that supply was not keeping pace with demand,\u201d says PBO Yves Giroux.\n\nThe PBO report notes that household borrowing capacity increased during the pandemic due to lower interest rates and COVID-19 financial support. However, in several cities, further increases in house prices far outpaced gains in borrowing capacity, resulting in wider gaps in house price affordability.\n\n\u201cAt the end of 2021, the average house price nationally was $811,700\u2014an increase of 43% from December 2019 and a 97% increase compared to January 2015. Our estimates indicate that in December 2021, average house prices in Hamilton, Toronto, Halifax and Ottawa were more than 50% above affordable levels for households earning average incomes,\u201d adds Mr. Giroux. \nFurther, the report finds that average house prices in Vancouver, Montr\u00e9al and Victoria were between approximately 30% to 45% above their affordable levels, based on household borrowing capacity, in December 2021.\n\nThe PBO report also compares the share of an average household\u2019s income that would be devoted to servicing mortgage payments to the Gross Debt Service (GDS) ratio used by financial institutions. \n\u201cOur results suggest that household financial vulnerability is elevated in several census metropolitan areas for households that have recently purchased homes, indicating that increases in interest rates will further stretch their finances\u201d says Mr. Giroux.","body_fr":"Le directeur parlementaire du budget (DPB) a publi\u00e9 aujourd\u2019hui son [\u00c9valuation du prix des propri\u00e9t\u00e9s](https:\/\/www.pbo-dpb.gc.ca\/fr\/blog\/news\/RP-2122-029-S--house-price-assessment-borrowing-capacity-perspective--evaluation-prix-proprietes-un-portrait-capacite-emprunt). Le rapport pr\u00e9sente une \u00e9valuation du prix des propri\u00e9t\u00e9s par rapport \u00e0 la capacit\u00e9 des m\u00e9nages d\u2019emprunter et de payer pour l\u2019achat d\u2019une maison dans certaines villes canadiennes.\n\nLe rapport du DPB dit qu\u2019\u00e0 partir de 2015, avant la pand\u00e9mie, le prix des propri\u00e9t\u00e9s dans plusieurs villes (Hamilton, Toronto, Ottawa, Victoria, Halifax et Vancouver) s\u2019est \u00ab dissoci\u00e9 \u00bb de la capacit\u00e9 d\u2019emprunt des m\u00e9nages, s\u2019\u00e9levant \u00e0 20 %, ou m\u00eame plus, au-dessus des prix abordables. \n\n\u00ab Juste avant la pand\u00e9mie, le prix moyen des propri\u00e9t\u00e9s au Canada \u00e0 la fin de 2019 \u00e9tait de 565 800 $, soit 37 % de plus qu\u2019en janvier 2015. L\u2019augmentation de la population a nettement d\u00e9pass\u00e9 le nombre de logements construits, ce qui d\u00e9montre que l\u2019offre n\u2019a pas suivi la demande \u00bb, a d\u00e9clar\u00e9 Yves Giroux, directeur parlementaire du budget.\n\nLe rapport du DPB indique par ailleurs que la capacit\u00e9 d\u2019emprunt des m\u00e9nages a augment\u00e9 pendant la pand\u00e9mie en raison de la baisse des taux d\u2019int\u00e9r\u00eat et du soutien financier li\u00e9 \u00e0 la COVID-19. Toutefois, dans plusieurs villes, les nouvelles augmentations du prix des propri\u00e9t\u00e9s ont largement d\u00e9pass\u00e9 les gains sur le plan de la capacit\u00e9 d\u2019emprunt, ce qui a entra\u00een\u00e9 des \u00e9carts d\u2019accessibilit\u00e9 plus importants.\n\u00ab \u00c0 la fin de 2021, le prix moyen des propri\u00e9t\u00e9s \u00e0 l\u2019\u00e9chelle nationale \u00e9tait de 811 700 $ \u2013 soit 43 % de plus qu\u2019en d\u00e9cembre 2019 et 97 % de plus qu\u2019en janvier 2015. Nous estimons qu\u2019en d\u00e9cembre 2021, le prix moyen des propri\u00e9t\u00e9s \u00e0 Hamilton, Toronto, Halifax et Ottawa \u00e9tait sup\u00e9rieur de plus de 50 % aux niveaux abordables pour les m\u00e9nages \u00e0 revenus moyens \u00bb, a ajout\u00e9 M. Giroux.\n\nEn outre, le rapport indique que les prix moyens des maisons \u00e0 Vancouver, Montr\u00e9al et Victoria d\u00e9passaient d\u0027environ 30 % \u00e0 45 % leurs niveaux abordables, selon la capacit\u00e9 d\u0027emprunt des m\u00e9nages, en d\u00e9cembre 2021.\n\nLe rapport du DPB compare \u00e9galement la part du revenu d\u2019un m\u00e9nage moyen consacr\u00e9e au service des paiements hypoth\u00e9caires avec le ratio du service de la dette brute (SDB) utilis\u00e9 par les institutions financi\u00e8res.\n\u00ab Nos r\u00e9sultats sugg\u00e8rent que la vuln\u00e9rabilit\u00e9 financi\u00e8re des m\u00e9nages qui ont r\u00e9cemment achet\u00e9 une maison est \u00e9lev\u00e9e dans plusieurs villes et va se d\u00e9t\u00e9riorer avec la hausse des taux d\u2019int\u00e9r\u00eat \u00bb, a d\u00e9clar\u00e9 M. Giroux.","release_date":"2022-02-17T09:00:00-05:00","is_published":"2022-02-17T08:59:06-05:00","internal_id":"COM-2122-028","permalinks":{"en":{"website":"https:\/\/www.pbo-dpb.ca\/en\/blog\/news-releases--communiques-de-presse\/pbo-releases-its-house-price-assessment-le-dpb-publie-son-evaluation-des-prix-des-proprietes"},"fr":{"website":"https:\/\/www.pbo-dpb.ca\/fr\/blog\/news-releases--communiques-de-presse\/pbo-releases-its-house-price-assessment-le-dpb-publie-son-evaluation-des-prix-des-proprietes"}},"pivot":{"publication_id":649,"news_release_id":28}}