House Price Assessment: A Borrowing Capacity Perspective
This report provides an assessment of house prices relative to a household’s capacity to borrow and pay for the purchase of a house in selected Canadian cities.
Highlights
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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.
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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.
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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.
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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.
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While approximate, our results suggest that household financial vulnerability is elevated in several cities for households that have recently purchased homes.
Communications
Quotes
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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.
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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.
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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.
Parliamentary Budget Officer