Income required to buy a home in Vancouver keeps increasing even as prices drop

Home values are dropping in major Canadian cities, but at the same time they’re becoming less affordable — and the trend is most pronounced in Vancouver.

The less-than-thrilling phenomenon is explained by Ratehub in its latest housing report, which suggests buyers need $3,900 more in household income compared to last month because of the higher stress test requirements.

At the same time, the average home price in Vancouver has dropped by $5,100.

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These numbers highlight how higher interest rates for mortgages have made it more expensive to borrow money — and buyers will need to fork over more cash for a home, even if its sale price is lower than in previous months.

“The stress test is the highest it has ever been, exceeding the high water mark that was set last month,” James Laird, CEO of Ratehub and president of CanWise mortgage lender, said in a statement. “August to September data highlights how impactful even a minor rate increase is on affordability.”

He added home values will need to drop a lot more to offset the affordability impact of sharp interest rate increases.

Ratehub.ca

The trend is similar in nine other major Canadian cities Ratehub looked at. Home prices decreased in all, but the income required to qualify for a mortgage rose. Data is based on a mortgage with a 20% down payment, 25-year amortization, $4,000 annual property taxes, and $150 monthly heating with five-year fixed rates from Canada’s five major banks.

Toronto saw the largest deflation in property, posting an average $14,000 drop since last month. But still, buyers need to make an extra $1,800 per year to qualify.

The way things look now, the only people who could benefit from these slightly decreased home prices are people who can buy the property in cash — without taking a loan to finance it.

How have increased interest rates impacted your search for a home or dreams of buying one? Let us know in the comments.