Research Briefing | Oct 24, 2022

North American housing affordability takes a dive as mortgage rates spike

Our Housing Affordability Indices showed affordability worsened in the US and Canada in Q2 due to sharply higher mortgage rates. This is despite the pace of house price growth slowing in the US and prices declining considerably in Canada. Based on our latest metrics, we think affordability will continue to deteriorate in the US through to mid-2023, but improve in Canada from Q4 2022.

What you will learn:

  • After the mild recession that we expect in the US in H1 2023, falling mortgage rates, soft house price inflation, and rebounding income growth should gradually help to improve housing affordability.
  • Our latest HAI for the US spiked 15pts to 1.02 in Q2, the first time it has risen above the 1.0 threshold since 2007. This puts prices 2% above the borrowing capacity of median income households. Our indices for LA and Miami (+23pts) registered the sharpest quarterly increases, followed by San Jose (+21pts), Seattle (+20pts), and Salt Lake City (+19pts). Boise was the only metro in our sample to record an improvement in affordability in Q2.
  • In Canada, the housing correction we had forecast earlier this year is well underway, but rising mortgage rates more than offset the affordability gains from lower house prices in Q2. Canada’s national HAI rose 10pts to 1.58 in Q2 2022. British Columbia (+17pts) and Ontario (+9pts) remained the least affordable provinces. Our HAI for Atlantic provinces jumped 15pts, while Quebec’s HAI rose 13pts, and Prairie provinces (+11pts) saw a smaller increase.
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