House prices in the three hottest cities in Canada – Calgary, Toronto, and Vancouver – are rising faster than family income, further straining affordability, says one of the country’s top economists.
Sal Guatieri, senior economist with BMO Bank of Montreal, said “the continued rapid price gains in these cities will increase their vulnerability to a shock—whether economic, interest rate, or otherwise.”
According to the BMO Fall Home Buying Report, released on Monday, 58 per cent of Calgarians and 65 per cent of Albertans, said increased interest rates of two percentage points would strain affordability for them. Nationally, 67 per cent of Canadians felt that way while 66 per cent in the Toronto area and 74 per cent in the Vancouver area concurred.
According to the Calgary Real Estate Board, year-to-date to October 19, there were 21,957 MLS sales in Calgary, up 10.55 per cent from the same period a year ago. The median price of $427,500 has increased by 6.88 per cent while the average MLS sale price of $483,717 has risen by 5.87 per cent.
“Gauging the stability of your mortgage by stress-testing it against a higher interest rate is key to making a responsible and informed home buying decision,” said Laura Parsons, mortgage expert with BMO Bank of Montreal. “Many buyers, especially in larger cities, need to evaluate different circumstances, and the likelihood of being able to afford their purchase long term.”
BMO said the effect of a rise in interest rates is more pronounced in Vancouver, where 22 per cent of potential buyers would be forced to leave the housing market – nearly twice the national percentage. However, buyers in Calgary would feel the pinch the least, with nine per cent cancelling their home-buying plans as a result of rising rates, said the report.