Rates.ca Resources & News

Will COVID-19 Help Housing Affordability?

Housing affordability.jpg

For those who’ve been hoping to enter Canada’s increasingly expensive housing market while prices are “on sale,” this seems like the chance they’ve been waiting for.

The coronavirus pandemic is inhibiting real estate markets across the country—April home sales plummeted and home inventories have soared. Sales in Vancouver and Toronto were down by 40% and 67%, respectively, as the national average home price dropped almost 10% in April, versus March.

Exactly how much prices fall from here is anybody’s guess. But current forecasts range from a 5% decline compared to last year (Capital Economics and RBC) to a 30% drop (an unlikely worst-case scenario from Moody's).

Is Homeownership Out of Reach for a Growing Number of Canadians?

Dreaming of a house.jpg

As much as it would pain existing homeowners to see their home values drop, it would be welcome news for those eager to participate in the homeownership dream.

Unfortunately, that dream has been slipping away for a large number of Canadians.

Of those who don’t currently own a home, nearly 1 in 5 (20%) believe they’ll be relegated to renting forever, according to a recent survey.

This percentage jumps to 94% for those born before 1946 (the “Silent Generation”), 61% for Baby Boomers, 41% for Gen Xers and 18% for millennials.

It’s not hard to understand this sentiment. In most big markets, home prices have been growing at an average of 2-3 times the pace of inflation for years. Incomes have lagged well behind.

Will Housing Affordability Improve?

With home prices falling, housing affordability will improve.

The nearly 10% drop in average home prices since March has slashed the minimum income needed to buy the average home by 10.3%. It’s also lowered the minimum required down payment on the typical home, from 5.39% ($29,198) to 5.00% ($24,410).

Falling mortgage rates are another factor improving affordability. Expectations are for the minimum stress test rate to keep dropping, which will give hundreds of thousands of homebuyers more purchasing power.

The Challenge for Today’s Buyers

Despite these net positives for housing affordability, we’re in the middle of recession and global health crisis.

Sad renters.jpg

That means more Canadians than ever are out of work, either temporarily or permanently, with additional job losses coming. In April alone, two million people lost work, sending the unemployment rate to its highest point since 1982 (13%+).

Lenders have also tightened underwriting standards, making it more difficult to qualify for a mortgage in many cases.

Perhaps interestingly, those belonging to Generation Z (aged 18-24) are most optimistic about their ability to afford a home, according to the survey cited above. A full 81% say they will own a home at some point in the future.

They may well be right, given the longer time horizon ahead of them. Or it may just be a case of youthful optimism. Let’s hope it’s the former.