House Price Assessment – Update
This report provides an update of PBO’s assessment of house prices relative to a household’s capacity to borrow and pay for the purchase of a house in selected Canadian cities. In addition, to gauge the potential downward adjustment in house prices in 2022, we consider scenarios based on assumed increases in mortgage rates and household debt service ratios.
The rapid increase in house prices during the pandemic pushed the national average price up 52 per cent to a peak of $839,600 in February 2022 from $551,100 in February 2020. The average house price has since declined by 7 per cent to $777,200 in August as mortgage rates have increased sharply.
We estimate that the gap between the average house price and the affordable house price nationally in August was 67 per cent. Average house prices in Hamilton, Toronto, Halifax, Ottawa, Montreal, Victoria and Vancouver were more than 50 per cent higher than their respective affordable prices.
To gauge the potential downward adjustment in house prices in 2022, we construct scenarios based on assumed increases in mortgage rates (to 6.25 per cent for the 5-year fixed rate) over the remainder of 2022 and assumed household debt service ratios. Our scenarios imply price declines at the national level (relative to peak) ranging from 12 per cent to 23 per cent by the end of this year.
The gap between the national average house price and what an average household could afford has increased from 45% in December 2021 to 67% in August 2022, a jump of 22 percentage points in just eight months. This increase is attributable to higher mortgage rates, which have lowered household borrowing capacity.
Parliamentary Budget Officer