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Homebuyers facing 'toughest time ever' to buy a home

Prospective home buyers in Canada are currently grappling with what one economist describes as the toughest conditions ever seen to afford a home. Robert Hogue, an assistant chief economist at RBC, emphasized in a recent report the significant challenges Canadians are facing in entering the housing market amidst elevated interest rates and soaring prices.

Hogue pointed out that the Bank of Canada's ongoing campaign to raise interest rates, which commenced in March 2022, continues to cast a shadow over the nation's housing sector despite recent efforts to stabilize rates. The consequence? House hunters are contending with substantially reduced purchasing power.

According to Hogue's analysis, the maximum budget for a household with a median income of $85,400 by the end of 2023 has plummeted by 22 percent since early 2022, settling at just under $500,000. These calculations, based on a 20 percent down payment and a 25-year amortization period, underscore the formidable financial hurdles prospective buyers now face.

While the upward trajectory of interest rates has significantly curtailed buyers' budgets, Hogue noted that home prices have only marginally declined by 1.8 percent during the same timeframe. This lack of substantial price adjustments exacerbates the affordability crisis, dampening demand and further straining Canadians' ability to step onto the property ladder.

Consequently, many potential buyers are adopting a wait-and-see approach, anticipating a potential downturn in interest rates before making any decisive moves. Despite the prevailing challenges, Hogue remains cautiously optimistic about the prospects of an eventual turnaround in market conditions.

The report suggests that improvements in affordability could materialize sooner if long-term interest rates ease in advance of any policy shifts by the central bank, coupled with sustained growth in household incomes. However, Hogue cautioned that any prospective improvements in affordability are expected to be modest compared to the substantial erosion witnessed during the pandemic.

Under RBC's baseline projection, the proportion of an average household income required to cover homeownership costs is anticipated to revert to mid-2022 levels by 2025. While this may reignite some interest among buyers, Hogue emphasized that the journey back to pre-pandemic affordability levels will be gradual and protracted.

In conclusion, the current landscape for prospective home buyers in Canada is undeniably challenging, marked by dwindling affordability amidst persistent economic headwinds. While there are glimmers of hope on the horizon, the road to recovery remains fraught with uncertainties, underscoring the need for cautious optimism and prudent financial planning among aspiring homeowners.



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