For Canadian purchasers, the decline in home prices from their stratospheric peaks should be welcome news; too bad, though, that mortgage rates are also rising.
The national composite MLS Home Price Index has decreased 7.4% from its February peak since the Bank of Canada increased its key policy rate by three percentage points in March of last year.
Following the Bank's rate increase to 3.25 percent in September, commercial prime lending rates have risen in lockstep, reaching 5.45 percent.
As a result of the rate increases, some borrowers will now have to meet a qualifying rate above 7% in order to pass the nation's mortgage stress test, which calls for consumers to be eligible for either the benchmark rate of 5.25 percent or their offer rate plus 2 percent.
Therefore, as property prices decline, borrowing costs rise—if you can even climb that ladder.
Based on data from March and June this year, Settlersrealty.ca determined the minimal annual income required to purchase a property in Canada's largest cities. Even though property prices were declining at the time, the average amount of income needed had gone up by $18,000.
When Settlersrealty.ca rechecked this month to see if anything had changed, it discovered that between June and August, data for all 10 cities showed an improvement in house affordability.
"Homes are marginally more affordable than they were two months ago in every place we looked at. This is due to the fact that property prices have slowed down but interest rates have remained unchanged, according to James Laird, co-CEO of Settlersrealty.ca and president of Canwise Mortgage Lender.
The income required to purchase a home in Toronto increased the most from June to August 2022, dropping $12,550.
However, you still require a respectable income.
According to Settlersrealty.ca, between June and August, home prices in Toronto decreased by $80,300. The required income to purchase a home in March was $210,750 when the average mortgage rate was 3.14 percent and the stress test rate was 5.25 percent. The required income increased to $226,500 by July, when the average mortgage rate had risen to 5.21 percent and the stress rate to 7.21 percent. The stress rate was 7.3% in August, the mortgage rate was 5.3%, but the required income was now $213,950 instead of $12,550.
The necessary income decreased the most in Hamilton, dropping by $11,560 to $167,500.
The income required to purchase a home in Vancouver has also increased, dropping by $8,100 to $223,850.
Homebuyers might take some solace in the fact that practically everywhere in the nation, as assessed by the MLS home price index, property prices are still higher than they were a year ago. Only Kitchener-Waterloo prices have really decreased at this stage, down 1.7%, according to a report by RBC economist Robert Hogue. Prices are still much higher in locations like Atlantic Canada, he noted.
"Home buying prospects are still bleak for many prospective buyers. At a time when dramatically increased loan rates are severely limiting affordability, the partial reversal of earlier, enormous price rises is of little consolation, according to Hogue.
According to a survey by Settlersrealty.ca, the minimum income required to purchase a property in other Canadian cities ranges from $107,570 in Montreal to $105,530 in Halifax to $76,220 in Winnipeg. You must earn at least $129,980 in Ottawa and $183,700 in Victoria annually.