One thing on everyone’s mind, including current homeowners and those looking to enter the market, is housing affordability in Canada. We’ve seen record-breaking numbers over the last few months that aren’t pointing us in the right direction.

Affordability across Canada has worsened through 2022, with Ontario & British Columbia facing the brunt of it. Buyers in Ontario have been extremely challenged due to the lack of inventory and surging interest rates.

The result? Aggregate affordability measure was thrust into record-highs across major markets in Ontario, including Toronto, Hamilton, London, St. Catharines, Kitchener-Waterloo-Cambridge, and Windsor. In all of this, Ottawa stands out as one of the lesser affected markets, having only hit our previous record high of 48.5 percent. Still, this is no cause for celebration.

What’s contributing to the extreme increase in housing affordability?

The soaring cost of homeownership just isn’t feasible for many Canadians. Many buyers have been forced out of the market due to either no longer being able to qualify for a mortgage or drastically reducing their purchasing budget.

The reason behind budget slashing and buyer sidelining is the surging interest rates that began back in March 2022. As of March this year, the Prime Rate was 3.45%; upon writing this, the Prime Rate now sits at 5.45%. The last time we saw the Prime Rate hit above 5% was in 2008.

So, what needs to happen for the markets to regain affordability?

Unfortunately, there is not one fix for the affordability issue our country faces. The good news is that fluctuations in the housing market are extremely normal. Looking back at historical data, you will find that real estate trends ebb and flow, typically bouncing back and moving in an upward trajectory. This period of increased interest rates and a lack of affordability, too, shall pass. 

But, what needs to happen is 3-fold. 

First, we need interest rates to stabilize. Once rates stabilize and we see less upward pressure on ownership costs, we can start to work toward regaining some affordability. Unfortunately, it’s looking like rates will continue to rise through the end of this year and into the first quarter of 2023.

Second, we need housing prices to drop. We’re already experiencing a cooling of the market, with fewer listings and sales happening quarter-to-quarter. We’re just now starting to see prices come down and soften as the market shifts. It’s expected that prices will continue to soften over the next few months, coming to a bit of a halt in the Spring of 2023. This, along with stabilized interest rates, will help with affordability.

Lastly, we need more inventory. Real estate is a supply and demand game; with low supply and high demand, you see a spike in pricing, which is what occurred throughout 2020 and 2021. The housing market becomes extremely difficult to navigate when there’s a lack of supply.

For more on the housing supply crisis in Ontario, check out our previous blog here.

Unfortunately, the rate at which housing can be built is far slower than the rate of demand, which means, specifically in Ontario, we will be in a continuous loop of playing catch-up. 

So, when will I be able to afford a home?

Many factors are at play that impact the timeline for reversing affordability trends. It’s expected that the changes necessary to create more affordable housing will not be complete before the end of this fiscal year. Unfortunately, affordability may worsen further and hit its peak at the end of 2022. 

Economists predict 2023 will bring some positive changes but erasing the damage that’s been done will take years.

Here’s the thing, although affordability is affecting many Canadians, it doesn’t necessarily mean you can’t enter the market. Many Canadians still can afford to enter the market and could benefit from doing so.

Talk to your mortgage broker or financial advisor to see if homeownership is still in your cards. Even with a reduced budget, if you work with the right realtor and look in the right markets, you can find a property that suits your needs.

Contact us if you’re looking for a property in the Ottawa area. We’d love to help you navigate this market and find a home that you love.