I read the RBC Housing Affordability Study for June this morning and I am mystified as to how affordability improved in Vancouver as mortgage rates went up and prices of homes went up.
From the RBC Affordability Study
British Columbia — Demand shifts to condos
"Solid income gains outstripped softer house price growth in the first quarter to make way for another slight improvement in affordability for two-storey homes in the province. The improvement is welcome relief for prospective buyers attempting to tap into the already high-priced property market. Affordability slipped in the remaining three home segments as prices continued to move higher. British Columbia’s market is unique among the western provinces because it appears to have already reached a saturation point. The pricey housing market, particularly for stand-alone homes, has already priced out many prospective homeowners. In reaction, the focus has shifted to the condo market, which has become the only affordable homeownership option for many. Looking ahead, the increased supply of homes on the market will further restrain price growth."
Aah, there we go - "solid income gains" - did you get a raise because I sure didn't?! Oh, and wait, affordability improved only in two storey homes but deteriorated significantly in townhomes and condos. Now it makes more sense.
Lets have a look at qualifying gross incomes for different housing types in Vancouver as per the mohican mortgage calculator.
Posted 5 year mortgage rates have risen approximately 0.85% in the past two months so as an example I did a calculation of what price decrease would be necessary to keep payments the same at the new mortgage rate compared to the old rate.
For example, a $500,000 mortgage at 5.3% rate with at 25 year amortization has a payment of $3011. Now the rate is 5.9% and the payment is $3191 for an increase of $180 per month. If payments were to stay constant the mortgage amount would need to decrease to $471,800 for a 5.6% drop in amount.