Housing becoming less affordable in Canada

Many Canadian homeowners feel like it is getting more and more challenging to make ends meet as housing becomes less affordable. In fact, according to a new study from RBC, housing is the least affordable it has been in Canada since 1990 and mortgage payments are taking a bigger bite out of household income.

Some highlights of the report include:

• RBC’s housing affordability index jumped substantially in Q4 2018, up to 53.9 per cent from 43.2 per cent three years ago. The affordability index is based on household income and housing prices. The higher the index reading, the less affordable housing is
• Rising housing prices in a number of cities are partly to blame for this jump in the affordability index, but rising interest rates are also contributing to the problem, as mortgage debt gets more costly
• Affordability has eroded more in the condominium market, often seen as a more affordable option, then in the detached housing market
• Toronto homebuyers are spending on average three quarters of their income to cover their housing costs. In Vancouver, homebuyers are forking out a shocking 88.4 per cent of their income for housing

“As rates continue to creep up, coupled with high housing prices, it is only a matter of time before numerous homeowners will find themselves in debt trouble and unable to pay for their homes,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

“In cities where housing prices are very high, homebuyers have become desensitized to the dangers of taking on too much debt, because they feel like taking out huge mortgages is just a means to an end. people need to think twice about how much mortgage debt they take out and consider how much they can really afford,” says Schwartz.

How much of your income should go towards housing?

There are varying schools of thought of how much of your income should go towards housing, but generally all of your housing costs (including mortgage and taxes) shouldn’t total more than 30 per cent of your gross income, at the absolute max.

What if your housing costs exceed 30 per cent of your income? Consider downsizing your home or looking at living in a less expensive neighbourhood in order to bring your housing costs in line with your income. Alternatively, you could look at increasing your income in order to make homeownership more affordable. If getting a hefty raise through your employer isn’t in the cards, think about renting out space in your home or taking on a roommate.

Maintenance fund

Don’t forget about the other costs of home ownership, like maintenance and repairs. Don’t add to your debt with these costs. Housing components (like the roof, heating/cooling systems, plumbing etc.) have a life span and will need to be repaired or replaced at some point. Make sure to have a home repair fund that you contribute to regularly, so that you don’t have to turn to debt for these costs. Keeping your home in good shape is essential to preserving its asset value.

Don’t push the limit on your debt ceiling for the sake of homeownership. Find out how to reduce your debt and make your home more affordable. Contact one of our trained credit counsellors at 1-888-294-3130 or visit our free online debt analysis.