While affordability has improved for home buyers in Canada, merely being less unaffordable does not mean that housing has become affordable.
RBC recently reported that housing affordability in Canada is the best it has been in three years—an improvement, but still a long way from where it needs to be.
In Vancouver, homeowners now spend 92.7 per cent of their household income on ownership costs; in Toronto, it’s 68.3 per cent, according to RBC. Both are far above the Canada Mortgage and Housing Corporation’s 30 per cent affordability threshold.
That gap leaves homeownership out of reach for many, even in a so-called buyer’s market.
Ontario’s population just posted its largest quarterly drop on record, according to Statistics Canada. As affordability remains elusive, more Canadians are looking west. In Edmonton, ownership costs sit at 33 per cent, and in Calgary, 42.3 per cent—both below the national level.
Affordability has improved mainly because home prices and rates have fallen at the same time—a rare combination.
Toronto condos are back to pre-pandemic pricing. Canada’s prime rate, which peaked at 7.20 per cent in 2023, has dropped to 4.95 per cent. Five-year fixed mortgage rates are now in the low-to-mid 4 per cent range. That has given buyers more room to negotiate, at least on paper.
Affordability may be improving, but the disconnect between home prices and real incomes tells a different story. Mortgage burdens remain near record highs, and by historical standards, affordability is still severely stretched.
The Real House Price Index shows that Canadian home prices have decoupled from disposable income far more than they have in the United States—a clear sign the market remains fundamentally out of balance.
Canada’s debt burden makes matters worse. Households owe $1.85 for every dollar of disposable income—the highest debt-to-income ratio in the G-7. Even with rates falling slightly, many families can’t afford to borrow more.
At the same time, the market is adjusting. Developers are retreating as demand slows and financing tightens. In Toronto, there are now 58 months of unsold pre-construction condo inventory—14 times higher than in 2022.
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Many condo projects are being paused, cancelled or converted to rentals. That could lead to a supply crunch next year or in 2027 if construction doesn’t pick up again.
Canada’s broader economy is also showing signs of strain. Unemployment hit 7 per cent in May, and youth unemployment reached 13.5 per cent—the highest since 2014 outside of the pandemic. Wage growth has been tepid, and the Bank of Canada isn’t in a rush to cut rates further with core inflation still hovering around 3 per cent.
Rental markets, by contrast, are stabilizing. National average rents declined by 3.3 per cent year-over-year in May, marking the eighth consecutive month of easing. For many, renting remains the only realistic option in the near term.
The takeaway
These market conditions are a rare window where prices, rates and buyer leverage have aligned. But with elevated debt, economic headwinds and falling construction activity, the clock is ticking. Unless income growth picks up—or home prices fall further—affordability may remain out of reach well into next year.
