Photo: James Bombales

After years of worsening affordability, the Canadian housing market finally caught a break in the last quarter of 2017, according to the National Bank of Canada.

“Canadian housing affordability improved slightly in [Q4 of 2017,] the first quarterly improvement since [Q2 of 2015,]” write National Bank economists Matthieu Arseneau and Kyle Dahms, in the bank’s more recent housing affordability monitor.

The bank measures housing affordability by tracking the mortgage payment on a representative home as a percentage of income, or MPPI. In Q4 2017 the national MPPI fell 0.2 points, after rising 3.9 points in Q3.

“The strongest improvements were in Toronto (-3.4 points) and Hamilton (-0.9 points),” reads the report. “Seasonally adjusted home prices fell 0.7 per cent from Q3 to Q4; the benchmark mortgage rate rose 0.16 points; and median household income rose 1.4 per cent.”
According to Arseneau and Dahms, a strong job market at the end of the year offset higher interest rates. That strength is going to need to continue for housing affordability to continue to improve in 2018.

“The vigour will need to last to mitigate the hit from further interest-rate rises in 2018,” they write. “The most expensive markets such as Toronto and Vancouver are the most sensitive to interest rate hikes.”

The pair suggest that the new mortgage stress test and foreign buyer tax could keep Toronto prices cool for the foreseeable future.

“In Toronto, the rate rise combined with the tax on foreign purchases seems to have suppressed demand; prices were down in Q4 and are likely to continue falling in 2018.”

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