Interest Rate Hikes Eroding Housing Affordability

Sabeena Bubber • July 9, 2018

After improving slightly late last year, housing affordability has now reached “crisis levels” in Vancouver and is posing a “tremendous challenge” in Toronto.


That’s the assessment from RBC’s latest Housing Trends and Affordability report, which says higher interest rates are the main reason for a deterioration in affordability right across the country.


“The winning streak for housing affordability in Canada ended,” the report reads, noting the aggregate affordability measure for Canada rose by 0.4 percentage points to 48.4% in Q1. “This rise entirely reversed the slight 0.3 percentage-point decline recorded in the previous quarter—the first decline in 10 quarters.”


Unsurprisingly, Toronto and Vancouver led the way as the country’s least affordable markets.

In Vancouver it takes 87.8% of household income to cover the costs of home ownership, the report said, while in Toronto that percentage is 74.2%. Compare that against the national average of 48.4%, or 43.7% in Montreal, 43% in Calgary and just 28% in Edmonton.


“[Affordability] is at crisis levels in Vancouver and poses a tremendous challenge for many Toronto-area buyers despite improving in the past two quarters,” the report noted.


Overall, higher interest rates were cited as the main factor for sending homeownership costs to a multi-decade high, while the situation was amplified in both Vancouver and Victoria due to a return to appreciating prices.


Although affordability in Toronto remains a concern, the report noted that it was one of only two markets, along with Winnipeg, to see a small improvement.


“The main reason was that home prices fell enough in both markets to counteract the effect of higher interest rates,” RBC noted. “In the case of the Toronto area, the mortgage stress test that came into effect in January added further downward pressure on property values—which were still adjusting to last year’s Fair Housing Plan implemented by the Ontario government.”


But that may not be the case for much longer, as the Toronto Real Estate Board’s latest data shows the average price of a home in the Greater Toronto Area climbed to a 13-month high in June—up 2 percent year-over-year to $807,871.


National Bank published similar findings to RBC recently in its Housing Affordability Monitor. It noted that the mortgage payment on a representative home as a percentage of median income rose by 1.2 points—the 11th straight month that this metric had increased.

Given the limited capacity for Vancouver and Toronto homebuyers to put more of their income towards housing than they already are, the National Bank report concluded that prices could start to decline should interest rates continue to increase.


“Since we don’t see how Vancouver and Toronto homebuyers could pay a higher share of their incomes for shelter, a downward adjustment of prices is conceivable,” the authors write. “If our scenario for interest rates out to the end of 2019 materializes (+75 basis point on the 5-year mortgage rate), and assuming historically average income growth, prices would need to fall on the order of 2% to keep home affordability from deteriorating further.”

 

This article was written by Steve Huebl and was originally published on Canadian Mortgage Trends on July 5th 2018. 


SHARE THIS ARTICLE

RECENT POSTS

Bank of Canada Holds Rate at 2.25% — June 10, 2026

By Sabeena Bubber • June 10, 2026
The Bank of Canada announced today that it is maintaining its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. For Canadian homeowners, buyers, and anyone with a mortgage on the horizon — here's what you need to know.

Let’s Talk About Getting Top Dollar for Your Property

By Sabeena Bubber • June 3, 2026
When it comes to selling your home, most people think the first call should be to a real estate agent. But the smartest first step often isn’t with your agent—it’s with an independent mortgage professional. Why? Because your mortgage plays a bigger role in your bottom line than most people realize. Planning to Buy After You Sell If selling means you’ll also be purchasing another property, you’ll want to know exactly where you stand financially before listing. Mortgage rules change regularly, and qualifying once doesn’t guarantee you’ll qualify again. Getting a pre-approval in place ensures you know what you can afford and eliminates surprises later. On top of that, reviewing the terms of your existing mortgage could uncover options you may not have considered. For example, porting your mortgage instead of arranging a brand-new one could save you thousands. Selling Without Buying Even if you aren’t planning to buy right away, there’s still an important step: understanding the cost of breaking your mortgage. Unless your mortgage is open, penalties apply—and they can be significant. By reviewing the numbers with a mortgage professional, you might find that simply adjusting your timeline could reduce or even avoid costly fees. Navigating Life Changes In situations like a marital breakdown, it can feel like selling the family home is the only path forward. But that’s not always the case. With the right guidance and a legal separation agreement, one spouse may be able to buy out the other, keeping the home and providing stability for everyone involved. The Bottom Line Selling your property is more than just putting a sign on the lawn—it’s about creating a financial plan that protects your equity and positions you for the best possible outcome. Before you take the leap, let’s sit down and review your options. 📞 If you’re ready to talk strategy and make sure you get top dollar for your property, I’d be happy to connect anytime.

RRSP Home Buyers’ Plan Explained: A Smart Way to Buy Your First Home

By Sabeena Bubber • May 27, 2026
Saving for a down payment is one of the biggest challenges first-time buyers face. What many don’t realize is that the Canadian government offers a program designed to make it easier—the Home Buyers’ Plan (HBP) . This program allows you to withdraw money from your RRSP to help purchase your first home, without immediate tax consequences. Here’s how it works: Who Qualifies? To be eligible, you generally need to be a first-time home buyer. In practical terms, this means you must not have owned a home in the past four years, nor lived in a property owned by your spouse or partner during that time. There are also special allowances if you’re living with a disability or helping a relative with a disability. In these cases, you can use the HBP even if you’ve owned a home more recently. How Much Can You Withdraw? Under the program, you can access up to $35,000 from your RRSP as an individual. Couples can combine their withdrawals for a total of $70,000 . These funds must have been in your RRSP for at least 90 days before you take them out. Paying It Back The HBP isn’t “free money”—it’s an interest-free loan from your own retirement savings. You’ll have 15 years to repay the full amount back into your RRSP, starting in the second year after withdrawal. Each year, the CRA will send you an HBP Statement of Account outlining how much needs to be repaid. If you don’t make your repayment in a given year, that amount will be added to your taxable income. Why It’s a Smart Strategy The HBP can give first-time buyers a powerful boost toward homeownership. It helps you put together a larger down payment, which can reduce your mortgage amount and monthly payments. Just remember: it’s important to balance the short-term benefit of homeownership with the long-term impact on your retirement savings. Next Steps Thinking about using the Home Buyers’ Plan? Let’s sit down and review whether it’s the right move for you. Together, we can create a strategy that gets you into your first home while keeping your future financial goals on track. 📞 Reach out anytime—it would be a pleasure to guide you through the process.

LET'S TALK

SABEENA BUBBER

MORTGAGE BROKER | AMP

Contact Us