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The average price of homes dropped this summer, easing the burden of higher interest rates.
The largest drops in qualifying income for a mortgage occurred in Toronto. Photo by David Bloom /Postmedia
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Edmonton’s real estate market has become more affordable in recent months even in the face of higher borrowing costs, a new study suggests.
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“What’s happened from June to August is fixed rates have not changed much,” says James Laird, chief executive office of Ratehub.ca, which recently published a study looking at affordability in 10 major metropolitan centres, including Edmonton.
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“Yet at the same time, prices have softened, which means affordability has actually gotten a little bit better.”
The report by the national online marketplace for mortgages examined how rising mortgage rates affected buyers’ ability to purchase an average-priced home in major Canadian cities as measured by the income required to qualify under the federal stress test.
What it found was from March to June affordability fell across Canada.
For example, a buyer in Edmonton in March needed $73,900 annual income to qualify at 5.25 per cent, the benchmark fixed rate set out by the Bank of Canada, to purchase the average priced home at $402,300.
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By June, the same buyer needed $86,770 of income to purchase a $409,300 home, qualifying at 7.21 per cent. That’s the average five-year fixed rate mortgage offered by Canada’s Big Five banks, plus two percentage points.
The higher borrowing cost reflects the change is stress test conditions amid rising mortgage rates where individuals must qualify at the higher of the benchmark of 5.25 per cent, or their offered rate plus two percentage points.
So initially, homes became less affordable—not just in Edmonton, but every other major city, Laird says.
Yet when comparing August with June, the numbers reveal affordability improving marginally.
Despite having to qualify at 7.3 per cent in August, buyers in Edmonton required $84,340 to purchase the average priced home at $392,400. That’s $2,430 less annual income than June.
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“So now you need a little less income to qualify.”
Laird further notes the scenario is similar across Canada with the largest drops in qualifying income occurring in Toronto where buyers needed $213,950 in annual income, or $12,550 less than June, to purchase the average home, worth about $1,125 million.
Broker/owner Tom Shearer of Royal LePage Noralta Real Estate, says it’s likely the slight change in affordability has benefited some buyers.
“Specifically, it would help first-time homebuyers who will buy the best property they can afford.”
With rising borrowing costs, fewer buyers in general are house hunting, so “there is also less competition,” Shearer adds.
In turn, pricing for single-family detached homes is “balancing out,” allowing some buyers to capitalize on lower prices than just a few months ago, he says.
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Yet other segments, condominiums in particular, remain affordable regardless of rising borrowing costs. The reality is condos are actually “challenging to sell,” Shearer says.
Despite rising rates, he adds the market remains relatively affordable, more so than in late spring and a little less so than before the Bank of Canada began hiking interest rates.
At the same time, the modest boost in affordability may indicate to policymakers that higher interest rates are having their intended effect, which is to cool price increases, Laird says.
“Policymakers would be pleased to see that the appreciation, at least in home values, has taken a breather.”
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