'House Poor' Canada Bemoans its Growing Affordability Crisis

Richard Blackwell examines the foundations of Canada's housing "affordability crisis," in which prices have doubled over the last decade due to low rates and easy mortgage terms.

"For just the second time in the past century, the country's housing market is pushing the limits of affordability, according to key statistical measures, shutting many potential buyers out of the market, and making it harder for those who have already taken the plunge to pay off their mortgages," says Blackwell. The price of homes in Canada has risen nearly 127 percent since 2000, and 50 percent in just the last six years. Worse yet, the anticipated rise in interest rates later this decade could make housing even less affordable because even a small increase will add hundreds of dollars to existing monthly payments. House prices have slowed in some markets, but Canadians worry that a cooling housing market could hurt the already weak economy.

With the average home costing around $350,000 (nearly five times the average household income), many Canadians are having difficulty finding affordable options in the housing market. "The underlying reason for this," points out Paul Kershaw, a professor at the University of British Columbia, "is that housing prices have risen dramatically, while household incomes - adjusted for inflation  - have barely moved at all since the mid-1970s."

Buying a house is becoming increasingly out of reach, especially for young people under financial stress. The generally accepted idea is that housing costs should make up one-third of the household budget, but the current number reflects a worrying trend. “Having young Canadians jump into home ownership, with mortgages that are at income multiples we’ve never seen before, is exposing a broad section of the population to significant risk if we run into any sort of a recession or macro shock or interest-rate rise," said Ben Rabidoux, an analyst with Mark Hanson Advisors. "We are just staggeringly comfortable with debt here in Canada right now."

As Blackwell explains, many have accepted that they will be "house poor" in the long run and are willing to pile on debt as a result of a relatively strong economy and low interest rates. However, the country's housing bubble is a growing concern, especially considering the impact that a recent housing bust has had on their neighbors to the south.

Full Story:  Frozen out: Behind Canada's housing 'affordability crisis'

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