OTTAWA — The Parliamentary Budget Officer warns homeownership has become even less affordable during the pandemic for the average buyer, who may find it even harder to get into the market unless prices drop.

OTTAWA — The Parliamentary Budget Officer warns homeownership has become even less affordable during the pandemic for the average buyer, who may find it even harder to get into the market unless prices drop.

House prices were skyrocketing before the COVID-19 pandemic hit two years ago, and have been further inflated by rock-bottom interest rates, demand for more space and supply that can’t follow.

According to the report by budget director Yves Giroux, house prices in most major cities could have been considered affordable at the start of 2015, depending on costs, but also on the borrowing capacity of buyers.

Giroux’s office estimates that home prices in Toronto, Hamilton and Ottawa were more than 50% above affordable at the end of 2021, and unaffordable by a smaller margin in Vancouver and Montreal.

He says the middle income will find it increasingly difficult to afford a home in the future unless prices fall or wages rise.

Giroux also warns that those who have recently bought homes are more vulnerable to rising interest rates and may find themselves unable to cope with a sudden shock like job loss.

Its report noted that debt loads in Toronto, Vancouver, Victoria and Hamilton were high enough that households could be considered financially vulnerable, meaning any loss of income would make them less likely to meet mortgage payments.

Financially better off homeowners will be able to handle higher rates, he said, but Giroux said those with average incomes who have recently purchased homes “could be in a tough spot” financially.

The report released Thursday adds to the evidence before MPs who, Giroux said, have repeatedly come to his office with questions about the cost of housing.

Giroux’s report indicates that at the end of last year, the national average home price was $811,700, a 43% increase from the $565,800 recorded in December 2019, some months before the pandemic hit the country.

The December 2021 figure was also almost double the average price of $413,000 in January 2015.

Low interest rates, pushed there by the central bank to keep the economy going, and federal supports that imposed a financial floor on households have helped push prices up over the past two years.

Giroux said the gains in borrowing capacity that financial circumstances offered were far outweighed by home prices in several cities and were actually widening the affordability gap.

Fixed-rate mortgage rates have climbed higher as the Bank of Canada is expected to start raising its key rate next month. If, and when, that happens, variable rate mortgages will start to climb as the central bank seeks to cool overheated markets.

Giroux said rising rates will likely offset any increase in household income for middle-income earners, meaning their ability to borrow, and therefore afford a home, will remain relatively stable.

Prices should come down to make home ownership more affordable for the average buyer, Giroux said. One possible avenue is to increase supply, which, according to Giroux’s report, did not keep up with the population boom between 2015 and 2019.

The federal government has sought to increase housing supply, promising cities funding to help speed up development times and approvals.

On Thursday, Finance Minister Chrystia Freeland offered transit funding to help cities manage shortfalls, but asked provinces and cities to speed up housing plans as a requirement money.

Conservative housing critic Matt Jeneroux said Liberal efforts so far have not been able to close the affordability gap for homebuyers and argued that plans government would not solve the problem.

This report from The Canadian Press was first published on February 17, 2022.

Jordan Press, The Canadian Press