CashNews.co
Housing affordability improved across the country in July, as mortgage rates softened with the Bank of Canada easing monetary policy.
According to an analysis conducted by Ratehub.ca, the minimum income required to purchase an average-priced home fell in the 13 markets examined from June to July. That marks the first time that affordability has improved since January, the report says.
Ratehub.ca says the improvement in housing affordability came as a result of the Bank of Canada’s consecutive rate cuts made in June and July, which brought the central bank’s benchmark interest rate from five per cent to 4.5 per cent. Five-year Government of Canada benchmark bond yields have also fallen through July and August, dropping as low as 2.89 per cent on Aug. 2. According to Ratehub.ca, consumer lenders set the benchmark cost for fixed-rate mortgages at a spread of between 100 and 200 basis points above the five-year yield. As yields fall, so do mortgage rates.
Ratehub.ca calculated the income required to purchase an average-priced home based on a mortgage with a 20-year down payment, 25-year amortization, $4,000 in annual property taxes and $150 for monthly heating. The mortgage rates used – 5.47 per cent in June and 5.29 per cent in July – were the average of the five largest banks’ five-year fixed rates at the time. Average home price data were from the Canadian Real Estate Association’s average home price index.
All 13 markets included in the report saw the income required to purchase an average-priced home drop. Toronto saw the biggest improvement in terms of affordability, with the income required to purchase a home dropping by $5,410 to $208,950 between June and July. While the lower mortgage rates helped, the average price of a home in the Greater Toronto Area also fell by $13,300, contributing to the lower income requirement. Vancouver also saw average home prices fall while the average income required to buy a home dropped by $5,020 between June and July to $226,680. Hamilton, Ont. saw the third-biggest rise in affordability, with income required to purchase a home dropping by $3,510 between June and July to $164,040, as the price of an average home decreased by $6,400.
The more affordable housing markets in Canada – specifically in Atlantic Canada and the Prairies – also saw income requirements dip between June and July. To buy an average-priced home in Fredericton, N.B. would require an income of $70,020, $210 less than in June. That came even as the price of an average home rose by $3,600.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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