housing affordability

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Interest Rates and Mortgage Borrowing Power in Canada


  • One often-overlooked contributing factor to rising home prices in Canada is mortgage interest rates.
  • Between 2000 and 2016, the prevailing mortgage interest rate declined from 7.0 percent o 2.7 percent. This decline resulted in a 52.9 percent increase in the mortgage borrowing power (maximum eligible mortgage size) of potential home buyers.
  • Based on average family incomes in 2000, falling interest rates resulted in increased mortgage borrowing power in the four main regions over the same period: Vancouver from $183,751 to $280,893; Calgary from $221,214 to $352,671; Toronto from $221,214 to $338,161; and Montreal from $171,692 to $262,459.
  • Average family incomes also increased from 2000 to 2014. Specifically, average nominal before-tax family income for Canada as a whole increased 53.0 percent over this period with changes in the four metropolitan areas as follows: Vancouver incomes increased by 47.8 percent; Calgary by 76.8 percent; Toronto by 35.2 percent; and Montreal by 45.5 percent.
  • Rising average family income coupled with decreasing interest rates resulted in a pronounced increase in the ability of potential home buyers to borrow. Specifically, the increase in nominal mortgage borrowing power for Canada as a whole was 126.1 percent.
  • The four metropolitan areas ranged from a high of 161.2 percent in Calgary to a low of 99.7 percent in Toronto with both Vancouver and Montreal recording similar increases of 118.4 percent and 115.0 percent, respectively.

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