Combined with the dizzying rise in prices in the residential real estate market, the current rapid rise in the Bank of Canada's key rate is making the dream of buying a first home increasingly inaccessible.
Over the past 12 months, say economists from the National Bank's Financial Markets division, the deterioration in affordability in Canada has been the largest in 40 years.
From 0.25% at the start of the year, the key rate has already reached 1.5%. And the Bank of Canada suggests that it will possibly climb to 3.0%.
In concrete terms, this suggests that all borrowing rates, ranging from mortgages to personal loans, including car loans, will increase by as much or almost, or 275 basis points (2.75%).
For your information, if such an increase (2.75%) occurs, this will have the impact of significantly increasing the mortgage bill. For a 5-year mortgage amortized over 25 years, you will have to pay approximately $148 more per month, per $100,000 mortgage, or $1,776 over one year.
On a $300,000 mortgage, the rate hike would cause the mortgage bill to jump from $1,343 per month to $1,787, up $444. This translates into an additional cost of $5,328 over one year.
In the case of a $500,000 mortgage, monthly payments would increase from $2,240 to $2,980, or $740 more per month or $8,880 over a year.
THE $112,220 QUESTION
In their recent study on "housing affordability" in Canada, National Bank analysts Matthieu Arseneau, Kyle Dahms and Alexandra Ducharme calculate that the "eligibility threshold" of income required to access single-family home ownership is currently at $112,220 in the greater Montreal area.
With such an income, a household will have the financial capacity required to acquire a property whose current price corresponds to the representative price of such a dwelling in the greater Montreal metropolitan area, i.e. some $553,000.
An income of $112,220 is still $40,299 more than the median household salary in the Montreal area, which is $71,921. We are talking here about an income 56% higher than the median income of Montreal households.
It will be agreed that the pool of young households wishing to acquire a first single-family home while earning such an income of $112,220 must be rather limited.
As a first property purchase, young households are forced to turn to condominiums, which are much more affordable than single-family homes.
In the greater metropolitan area, the average condominium price is currently around $383,000. Analysts from National Bank's "Financial Markets" estimate at $78,182 the qualifying income needed to buy a condominium of such value.
Here we are approaching some $6,261 of the median salary ($71,921) of Montreal households. This suggests that the pool of first-time condominium buyers should be quite high. For now at least.
When we compare, we console each other
Despite the deterioration in affordability of property in the greater metropolitan area, the fact remains that the Montreal region is still much more affordable than in many of the other major metropolitan areas in Canada.
According to the study by National Bank specialists, here is the annual qualifying income required to acquire a non-condo type property (single-family or equivalent) in the following metropolitan areas: