Buyers and Sellers Are Concerned of the Rising Cost of Living

Anyone looking to get into the Canadian housing market or sell off their properties may be hesitating to make a move as the cost of living continues to soar.

Canadians are feeling the pinch. The price of gas, groceries and other basic necessities are rising, and they don't seem to be losing steam any time soon.

Unfortunately, salary increases are not keeping up with rising inflation, which is putting Canadians in a financial predicament. Buyers and sellers, in particular, are feeling uneasy about carrying out transactions as a result.

Rise in Interest Rates Leaves Many Out Of The Housing Market

Rising mortgage interest rates are making home buying much more unattainable, and sellers are having to tame their listing prices to entice buyers to offset the cost of financing.

The Bank of Canada has been forced to spike interest rates in light of inflation, which has weakened housing demand and put downward pressure on home prices.

But the way inflation is truly affecting homeownership is the pressure on Canadians' incomes, which is negatively affecting all aspects of life, including covering the cost of groceries, transportation, and housing.

Luckily, gas prices have dipped over the past year, which has helped a little. But the cost of just about everything else doesn't seem to be letting up. Given the fact that wages are not increasing at the same pace as the cost of living, many are left wondering how they'll be able to afford housing, whether it's a mortgage or rent.

Canadians Must Earn More To Cover Household Costs

It's a concern that has a big chunk of the Canadian population worried. According to RBC, 62.7% of household income is required to cover the costs of homeownership. That's the highest level ever recorded. The problem is even more pronounced for those living in Toronto and Vancouver, where 85.2% and 95.8% of household income is needed to cover homeownership costs, respectively.

But the problem is rampant even in less expensive cities across Canada. It seems like most housing markets across the nation are affected to some degree.

The recent health crisis certainly played its role. Home prices soared during those months, followed by several interest rate hikes that contributed to a sky-high rate of inflation. This made it extremely challenging for Canadians seeking approval for a mortgage. In Toronto, for instance, households need a 29% higher income at the benchmark price to secure a mortgage compared to late 2021.

Rent Price Spikes Making It Difficult For Tenants

Higher mortgage interest rates are asking more from Canadians. And rent prices are not making housing any easier. While renting has traditionally been the more affordable and accessible means of finding housing, it's now out of range for many renters.

For instance, the average rent price for a 1-bedroom unit in Toronto is currently $2,350 per month, according to Zumper.com. And for a 2-bedroom, the price bumps up to $2,995. Imagine how much more it costs for 3- or 4-bedroom units, which is typically needed for families.

Is Relief On The Horizon?

Having said that, relief may be on the way. Home prices have dipped since interest rates started spiking. RBC believes housing price corrections may finally be nearing an end. Bankers also anticipate the benchmark price of a house will drop 14% from its spring 2022 peak. Combined with a plateau in interest rate hikes, this could help ease the burden of affordability.

But it will likely take some time still before we see any significant affordability improvements