Housing affordability in Canada improved in the fourth quarter of 2020, marking a third amelioration in a row. That said, the improvement this quarter was much less impressive. Higher incomes and record low interest rates were almost completely offset by a substantial rise in home prices. Indeed, prices for the national composite rose 4.5% in the quarter, the highest quarterly gain in 11 years. While a 29 basis points decline in our 5-year benchmark mortgage rate has helped keep housing affordable this quarter, the nearly 100 basis points decline for rates since the start of the pandemic is surely propulsion for the current appreciation in home prices. Although the confluence of all these factors has resulted in home affordability having never been better since 2015, there is another hurdle for potential homebuyers. The rise in home prices has translated into a higher down payment. At a national level, there has never been a worse time to accumulate the minimum down payment. Assuming a savings rate of 10% of total median household income, it would now take 60 months (5 years) to save for the minimum down payment (approximately 6%) on the representative home. Still, with interest rates unlikely to rise soon, vaccine rollout ushering a return to normal and market conditions in favour of sellers, home prices are on track to keep growing in 2021. As a result, affordability is likely to
deteriorate on both a mortgage payment as a percentage of income and down payment basis going forward.

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