Yahoo Finance Housing affordability might improve by year end, but not by much: Desjardins
There could be 'opportunities to come off the sidelines in late 2024 or early 2025'
Rate cuts should make it easier to buy a home in Canada’s four largest provinces in the months ahead. However, affordability still won’t reach pre-pandemic levels anytime soon, new modelling from Desjardins Group’s economists suggests.
There could be “opportunities to come off the sidelines in late 2024 or early 2025,” Marc Desormeaux, Desjardins’ principal economist, wrote in a paper published Thursday. Beyond that time frame, he writes, “our projections also include steady price gains” spurred by forecasted Bank of Canada rate cuts.
Those projected price gains are a consequence of “drivers of affordability” that “sometimes work at cross purposes,” Desormeaux writes.
“Lower interest rates will reduce the cost of carrying mortgage debt, but they’ll also put upward pressure on home values and by extension monthly mortgage payments.”
Desjardins’ forecasts come in the form of the Desjardins Affordability Index (DAI), which factors in household disposable income, mortgage qualification thresholds, home prices, mortgage rates and other ownership costs in order to measure how affordability is evolving over time.
For this latest forecast, Desjardins modelled its primary expectations as well as four alternative scenarios for the months ahead that considered different economic outcomes, including one in which population growth continues at the 2022–2023 pace, and another envisioning a large-scale recession. But none of the alternatives changed the paper’s bottom line, which is that the DAI won’t return to pre-pandemic levels before 2027.
The DAI aligns with other data and analyses that paint a dismal picture of housing affordability in Canada. Of the four largest provinces — British Columbia, Alberta, Ontario and Quebec — only Alberta’s affordability is not currently at a record low on the index.
With that said, Alberta’s affordability situation is mixed. Affordability has declined recently, with “a strong recovery and torrid population gains” pushing “home values significantly higher,” Desormeaux notes. “Strikingly, Calgary home prices currently sit 10 per cent above their prior peak in February 2022 and should continue to climb as borrowing costs come down.”
On the other hand, Alberta’s “recent deterioration of affordability, while meaningful, hasn’t been as severe or rapid as that experienced during the oil boom of 2005–07 that briefly lifted Calgary home prices above Toronto’s.”
Like Alberta, Quebec has seen “more pronounced” declines in affordability since late 2019, with “some of the strongest home price gains in Canada since the start of the pandemic,” Desormeaux writes. But both provinces remain more affordable than Ontario or B.C., where housing prices haven’t climbed as quickly but were already highly unaffordable.
“We think those jurisdictions’ particularly costly starting points mean they’ll remain the most prohibitively expensive,” Desormeaux wrote.
Looking to the future, Desormeaux notes that while there should be “some relief in the quarters ahead,” Canada’s overall housing crisis is one for which “there are no quick fixes.” The only meaningful solution, he writes, is an increase in housing supply.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf. Download the Yahoo Finance app, available for Apple and Android.
