Canada’s housing market has seen a subtle shift, with homeownership costs experiencing their fourth consecutive quarterly decline in late 2023. On average, Canadian households are now allocating 55.9% of their income to cover essential housing expenses like mortgage payments, property taxes, and utilities. This marks a notable improvement from the peak of 63.8% recorded just a year prior. However, it’s crucial to understand that this reduction only partially offsets the severe deterioration in affordability that occurred during the pandemic, leaving housing across the country still exceptionally stretched for many.
Driving Forces Behind Modest Improvements
The primary catalyst for this recent, albeit minor, rebound in affordability has been lower mortgage rates. Anticipation of interest rate cuts by the Bank of Canada has driven down fixed mortgage rates, offering some relief to prospective homebuyers. This positive impact was observed across all tracked markets in the fourth quarter of 2023, with Toronto and Vancouver registering the most significant drops in ownership costs. Looking ahead, further improvements are anticipated in 2025, contingent on the Bank of Canada continuing to reduce its policy rate as expected.
Despite these incremental gains, the journey to a full restoration of housing affordability is a protracted one. Only about one-third of the affordability lost during the pandemic era has been recovered so far. The future trajectory of affordability will largely depend on the delicate balance between home price movements and household income growth. Experts anticipate a scenario of gradually rising home prices coupled with modest wage growth, suggesting that substantial leaps in affordability are unlikely in the near term.
Policy, Economic Headwinds, and Regional Divergence
While long-term solutions often involve policy changes aimed at boosting housing supply, the benefits of such initiatives are typically slow to materialize. Currently, broader economic concerns, particularly the uncertainty surrounding potential U.S. tariffs and a trade war, have somewhat overshadowed the housing affordability crisis, contributing to a slowdown in home resale activity. This external pressure adds another layer of complexity to an already intricate market.
Across Canada’s diverse regions, housing market conditions and affordability challenges vary significantly:
- British Columbia: Victoria and Vancouver continue to grapple with severe affordability challenges, despite seeing some recent improvements.
- Alberta: Calgary’s market is undergoing a rebalancing, leading to more moderate price gains, while Edmonton’s affordability progress is being stalled by robust price growth.
- Prairies: Saskatoon’s housing demand is being fueled by a booming population. Regina maintains its status as the most affordable market among those tracked, and Winnipeg’s housing recovery appears to be on track despite broader economic uncertainty.
- Ontario: Toronto’s persistently high ownership costs continue to weigh down market activity. Ottawa’s market is softening amidst economic uncertainties.
- Quebec: Montreal’s previously heated market is expected to cool down, while rising prices in Quebec City are limiting the drop in ownership costs for residents.
- Atlantic Canada: Saint John’s recovery is being dampened by solid price gains. Halifax homebuyers are still feeling the lingering sting of earlier affordability losses. In contrast, St. John’s market is thriving, bolstered by positive economic and demographic trends.
In essence, while there’s a glimmer of hope with declining ownership costs, the path to widespread housing affordability in Canada remains challenging, influenced by a complex interplay of interest rates, economic policies, and regional market dynamics.