National Bank Latest Report Shows Modest Improvement in Housing Affordability Amid High Mortgage Payments

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The National Bank of Canada's latest report on housing affordability shows a general improvement in the second quarter of 2024, reflecting a positive trend in 80% of major local markets. Despite a 0.4% increase in seasonally adjusted home prices, a decrease in benchmark mortgage rates and a rise in median household incomes contributed to a slight dip in the "mortgage payment as a percentage of income" (MPPI), which fell by 1.1 percentage points to 57.9%. The report indicates that affordability improvements were widespread, with significant reductions in MPPI observed in many major markets, although not uniformly across all regions.

However, while the data suggests an improvement, the current affordability levels remain challenging compared to historical norms. Despite the quarterly progress, housing affordability continues to lag behind pre-pandemic levels. For example, Greater Toronto and Hamilton saw notable improvements in MPPI, but these figures still remain high compared to historical averages. Similarly, Greater Vancouver remains the least affordable major Canadian city, with an MPPI of 94.5%, despite a slight quarterly decrease. The report highlights that high mortgage payments relative to income are still prevalent, affecting the affordability of both condominiums and non-condominium properties.

Looking ahead, the National Bank forecasts a potential easing of the policy rate by 150 basis points over the next year, which could further improve housing affordability by reducing financing burdens. However, risks such as potential price increases and economic uncertainties could impact this forecast. Lower interest rates might not fully alleviate affordability issues if home prices rise concurrently, though a softer economy and labour market might mitigate such risks. The current focus remains on balancing these factors to improve overall affordability conditions.

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