Edmonton Home Affordability Improves Despite Higher Mortgage Rates

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Photographer: Darby P. | Source: Unsplash

Despite higher borrowing costs, home buyers may be surprised to learn that Edmonton real estate is actually slightly more affordable now than it was at the height of the red-hot market earlier this year.

A recent report by Ratehub.ca looked at how rising interest rates affected Canadian home buyers' ability to afford average-priced homes as measured by qualifying annual income required under the federal mortgage stress test. The study looked at 10 major Canadian cities including affordability based on the average Edmonton home price from March to August of 2022.

Home affordability in Canada fell from March to June

In March of this year, the average Edmonton home price was $402,300. To qualify at 5.25%, the benchmark fixed rate set out by the Bank of Canada, a buyer needed $73,900 in annual income.

In June, the same buyer needed $86,770 of income to afford an average Edmonton home price of $409,300 based on a qualifying rate of 7.21% (the average five-year fixed rate plus two percentage points).

A return to balance in the market improved affordability in August

Despite having to qualify at 7.3% in August, Edmonton home buyers needed $84,340 to purchase an average Edmonton home price of $392,400. That works out to $2,430 less in qualifying annual income required to buy an average-priced home in Edmonton compared to June of this year.

While the average Edmonton home price did not decrease significantly, this slight softening of house prices did improve affordability compared to June of this year. Not surprisingly, the largest drops in qualifying income occurred in Toronto where house prices have seen the steepest decreases. While affordability in Edmonton improved compared to June, it is still less affordable than it was in March which is not surprising considering the difference in mortgage rates now.

Minimal annual income required to qualify for a home in Canada’s major cities - August 2022

Future rate hikes could tip affordability balance

The Bank of Canada will consider the modest improvement in affordability as an indicator that higher interest rates are working as expected. However, continued increases in interest rates will continue to push stress test rates higher. Depending on how much the average Edmonton house price decreases, if at all, continued rate hikes may have a negative impact on home affordability.

Home affordability is an important aspect policymakers will need to consider as they look at how much higher rates may go and for how long.

In the meantime, home buyers right now are benefiting from a buyers market where there are plenty of options to choose from and fewer buyers to compete with.

Do you have questions about buying or selling a home in Edmonton? With nearly 20 years of experience in the Edmonton market, Wally has helped hundreds of homeowners navigate the ups and downs of the market.
Call/text Wally at 780.238.7384 for a consultation.
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