The past decade has witnessed a concerning trend in the housing market, as mortgage payments have significantly outpaced income growth for many individuals and families.
This growing disparity raises questions about the affordability of housing and the financial strain placed on homeowners and renters alike.
The cost of homeownership has escalated sharply since 2014. According to the Canadian Real Estate Association (CREA), the national average home price in Canada increased from $413,000 in 2014 to over $727,000 in 2024. Thus, it represents a staggering 76% rise. As home prices soared, mortgage payments followed suit.
This dynamic interplay of factors has cast a shadow on the housing landscape, resulting in a palpable increase in monthly mortgage payments.
The real estate market, once considered a stable investment, has become a terrain marked by the complexities of fluctuating home values and the rollercoaster ride of interest rates.
Mortgage Payments Soar Over 100% in 10 Cities, Outpacing Income Growth of Just 16% or Less in the Last Decade
In the past decade, monthly mortgage prices Canada have gone up in every city we looked at. Most cities saw an increase of over $1,000, and in four cities, the increase was more than $3,000 since 2013.
Over the past ten years, even though people in Ontario and British Columbia saw their average incomes go up, the monthly mortgage payments in these provinces increased a lot. In places like Hamilton-Burlington and Barrie District, the jump in monthly mortgage payments was the highest.
In 2013, if you were in Hamilton-Burlington, you’d pay around $1,680 a month for your mortgage. Fast forward to 2023, and that number went up to $5,034, a big increase of $3,354. Barrie District had a similar story, going from $1,442 in 2013 to $4,778 in 2023.
The average home prices in both these places shot up by more than $500,000 between 2013 and 2023, which is probably why the monthly mortgage payments also shot up. But here’s the catch – even though people in Hamilton-Burlington and Barrie District made more money over the years (an average of $6,300 more). It’s just a 12.8% increase, not nearly enough to cover the mortgage hike, which was almost 200% in some cases.
Next on the list were Victoria and Greater Toronto, where mortgage payments went up by more than $3,000. For Victoria, that’s a 158% increase, and for Toronto, it’s 129.8%.
While people in both these cities did see their incomes go up by more than $7,000, it’s only a 15.2% increase for Victoria and a 16% increase for Toronto.
What is the Impact of Interest Rates?
Interest rates play an important role in determining the affordability of a mortgage. The Bank of Canada kept interest rates historically low through 2022 to stimulate the economy. However, in response to inflation, the Bank of Canada raised its benchmark rate to 5% in 2023 and 2024.
Rising interest rates directly affect mortgage payments. For example, a 1% rent increase on a $727,000 home can add more than $350 to monthly payments. With a 5% rate in 2024, homebuyers face much higher costs than those with mortgages at lower rates over the past decade.
The gap between rent payments and income growth differs by region. In cities like Toronto and Vancouver, where home prices have surged, the difference is most noticeable.
For example, Toronto’s house prices more than doubled from $566,000 in 2014 to $1.14 million in 2024.
While household income only grew by about 30%, worsening affordability issues. In contrast, suburbs and rural areas saw smaller increases in house prices. It leads to less severe gaps between rent and income, but the trend of rents rising faster than incomes persists.
Affordable Home Prices Acting as a Buffer, Keeping Mortgage Payments in Check Across Certain Cities
Amid rising Canadian home mortgage rates across the board, Saskatoon, Edmonton, and Regina stand out as the exceptions, experiencing less than a 50% increase.
These cities also saw relatively modest increases in home prices, with Regina’s prices going up by only $10,600 since 2013, allowing their monthly mortgage payments to rise by just $422 over the last ten years.
Regina, in particular, maintained a unique position with both home prices and mortgage payments seeing minimal growth. Despite a wage decrease, from $52,800 in 2013 to $52,100 in 2021, Regina remained an anomaly in the housing market.
Edmonton and Saskatoon faced slight declines in wages as well, with Edmonton dropping by $100 and Saskatoon by $700. However, their home prices and mortgage payments stayed more manageable than the broader trend.
Calgary, while witnessing a drop in average income from $65,800 in 2013 to $61,400 in 2021, experienced relatively moderate growth in home prices and monthly mortgage payments.
In September 2013, Calgary’s average monthly mortgage payment reached $3,317, marking it as the highest outside of Ontario and British Columbia, yet still showcasing a more restrained increase compared to other metropolitan cities.
“By implementing effective policies and solutions, we can strive towards a more balanced real estate market Canada that aligns mortgage payments with income growth, ensuring a sustainable and affordable future for all.”
What are the Long-Term Implications?
The widening gap between rent payments and income growth has many long-term effects on housing markets and the economy.
Declining Affordability: As housing prices increase, fewer people, especially the younger generation, can afford a home. A report from CMHC in 2023 projects that the proportion of Canadians aged 25 to 34 who own homes will decline from 55% in 2013 to 48% by 2023. If this trend continues, more people could take it housing and they can acquire less wealth by owning houses.
Household Debt Rose: Many Canadians took on more debt to pay for rising rents. By 2024, household debt in Canada will reach 182% of disposable income, a record high. This increase in debt makes households more vulnerable to economic shocks such as job losses or higher interest rates.
Income Inequality: Differences in rent payments and income growth have exacerbated income inequality. Before inflation, homeowners made money, while those who didn’t buy were left behind. This growing wealth gap can lead to long-term social stability and economic balance issues.
Lower consumer Spending: Higher mortgage payments leave households with less money for additional expenses. This decline in consumer spending could slow economic growth and hurt businesses that rely on consumer purchases.
Final Thought
Over the last ten years, mortgage payments have grown much faster than incomes in Canada. This has made it harder for many people to afford homes, especially in big cities.
Also, government policies and market changes have played a role in this problem. To fix it, we need to work together to build more homes, help incomes grow, and teach people more about managing money.
