With inflation and interest rates continuing to rise there are renewed concerns about housing affordability in Canada.

Statistics Canada pegged the inflation rate at 7.7% in May, its highest level in almost 40 years.  That set the stage for further speculation that the Bank of Canada would likely boost its trend-setting interest rate by 75 basis-points at its July setting.  Such a move would put it at 2.25%.

The quarterly “Affordability Index” produced by one of Canada’s big banks cites rising interest rates as a key factor in declining affordability.  According to the bank’s measure the affordability index jumped nearly 4 percentage points to 54% in the first quarter.  That is its worst level since the early 1990s.  (Higher number = lower affordability.)

The bank is offering a “Good News – Bad News” forecast, saying it expects Canada’s benchmark average home price to drop by 10% this year.  That would help affordability but it could hurt homeowners who bought at the peak of the market.

Affordability concerns also appear to be deflating home ownership ambitions in Canada.  A survey by one of the country’s big insurance companies suggests nearly 80% of Canadians believe home ownership is a good investment, but almost 75% say this is a bad time to buy.

Nearly half of the renters who responded say they will continue to rent indefinitely, or that they do not know when they will buy.

About a quarter of the homeowners who responded say they feel “house poor”.