PBO releases its House Price Assessment

The Parliamentary Budget Officer (PBO) today released his House Price Assessment. The report provides an assessment of house prices relative to a household’s capacity to borrow and pay for the purchase of a house in selected Canadian cities.

The PBO report finds that beginning in 2015 house prices in several cities (Hamilton, Toronto, Ottawa, Victoria, Halifax and Vancouver) “de-linked” from household borrowing capacity, rising 20%, or higher, above affordable prices, prior to the pandemic.

“Just prior to the pandemic, the average house price in Canada at the end of 2019 was $565,800—an increase of 37% from January 2015. Population increases sharply outstripped housing completions, which suggests that supply was not keeping pace with demand,” says PBO Yves Giroux.

The PBO report notes that household borrowing capacity increased during the pandemic due to lower interest rates and COVID-19 financial support. However, in several cities, further increases in house prices far outpaced gains in borrowing capacity, resulting in wider gaps in house price affordability.

“At the end of 2021, the average house price nationally was $811,700—an increase of 43% from December 2019 and a 97% increase compared to January 2015. Our estimates indicate that in December 2021, average house prices in Hamilton, Toronto, Halifax and Ottawa were more than 50% above affordable levels for households earning average incomes,” adds Mr. Giroux. Further, the report finds that average house prices in Vancouver, Montréal and Victoria were between approximately 30% to 45% above their affordable levels, based on household borrowing capacity, in December 2021.

The PBO report also compares the share of an average household’s income that would be devoted to servicing mortgage payments to the Gross Debt Service (GDS) ratio used by financial institutions. “Our results suggest that household financial vulnerability is elevated in several census metropolitan areas for households that have recently purchased homes, indicating that increases in interest rates will further stretch their finances” says Mr. Giroux.