Key Factors That Impact Affordability Today - Thursday March 10th, 2022

Key Factors That Impact Affordability Today - Thursday March 10th, 2022

You can’t read an article about residential real estate without the author mentioning the affordability challenges that today’s buyers face. There’s no doubt homes are less affordable today than they were over the last two years, but that doesn’t mean homes are now unaffordable.

There are three measures used to establish home affordability: home prices, mortgage rates, and wages. Let’s look closely at each of these components.
 

1. Home Prices

A recent news release from the Toronto Real Estate Board indicates that the average selling price for all home types combined was up by 27.7 per cent from last February to $1,334,544. The pace of price growth varied by home type and region.

“Demand for ownership housing remains strong throughout the GTA, and while we are marginally off the record pace seen last year, any buyer looking in this market is not likely to feel it with competition remaining the norm. Substantial immigration levels and a continued lack of supply, however, will have a countering effect to increasing mortgage costs,” said TRREB President Kevin Crigger.
 

2. Mortgage Rates

While the current global uncertainty makes it difficult to project mortgage rates, we do know current rates are almost one full percentage point higher than they were last year. According to Robert Hogue, a senior economist with the Royal Bank of Canada, Canadians could see as many as four interest rate hikes this year, each comprising an additional 25 basis points.

“We want to clearly signal that we expect interest rates will need to increase,” said Bank of Canada Governor Tiff Macklem in a press conference on Jan. 26.

“The timing and pace of those increases will be guided by the bank's commitment to achieving the two per cent inflation target.”
 

3. Wages

The one big, positive component in the affordability equation is an increase in wages. In a recent article published in the Canadian HR Reporter data from a Willis Towers Watson (WTW) sheds light on the current trend. Companies are now budgeting an overall average increase of 3.4 per cent in 2022, up from the average 3.0 per cent increase they projected in June 2021. Employers gave employees an average pay increase of 2.8 per cent in 2021.

“There’s a great reprioritization of work, rewards and careers under way, and it’s putting significant pressure on compensation programs for many employers,” says Catherine Hartmann, North America rewards practice leader at WTW, noting that employers are looking to be resilient and adaptable in responding to the pandemic.
 

Key Measures That Impact Affordability Today 

When you think about affordability, remember that the picture includes more than just home prices and mortgage rates. When prices rise and rates rise, it does impact affordability, and experts project both of those things will climb in the months ahead. That’s why it’s less affordable to buy a home than it was over the past two years when prices and rates were lower than they are today. But wages need to be factored into affordability as well. Because wages have been rising, they’re a big reason that, while less affordable, homes are not unaffordable today.
 

Bottom Line

To find out more about affordability in our local area, let’s discuss where home prices are locally, what’s happening with mortgage rates, and get you in contact with a lender so you can make an informed financial decision. Remember, while less affordable, homes are not unaffordable, which still gives you an opportunity to buy today.  Give me a call at 416-522-1112.  

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