The housing affordability in Canada is gradually improving, with stalled home values, rising incomes, and falling mortgage rates creating a more favorable environment for homebuyers. Despite these positive trends, the National Bank of Canada estimates that the median household would need to double their annual earnings to qualify for a mortgage on a typical home in major urban markets across the country. The third quarter of the year marked the third consecutive improvement in housing affordability, with the mortgage payment on a representative home as a percentage of income falling to 56.6 percent. Home prices rose slightly quarter-to-quarter, while median household incomes increased by 1.1 percent. Additionally, the benchmark five-year mortgage rate also declined, making it easier for homebuyers to qualify for a mortgage.
Improvements in housing affordability were seen across most major markets in Canada, except for Quebec City, which experienced a larger gain in home prices in the quarter. Vancouver, despite showing the biggest affordability improvements, remains the least affordable city overall with an MPPI of 92.3 percent. Toronto also saw an improvement in housing affordability levels, reaching their best levels since the first quarter of 2022. However, the MPPI in Toronto remains well above historical averages at 78.4 percent. The report estimated that the qualifying income needed to buy a home in Canada last quarter was $186,963, with higher income requirements in Toronto and Vancouver.
Housing unaffordability has been a significant issue in Canada in recent years, but the easing of affordability according to National Bank offers some hope. The MPPI is currently at its lowest level in over a year. However, analysts warn that this relief may be short-lived as bond yields, used as a benchmark for fixed-rate mortgages, have increased since September, limiting hopes for further rate relief. The analysts also question the impact of Ottawa’s proposals to extend the amortization limit for first-time homebuyers to 30 years, expressing skepticism about whether this measure truly contributes to affordability in the long term.
National Bank economists Kyle Dahms and Alexandra Ducharme emphasize that restoring housing affordability remains a significant challenge for policymakers in Canada. They express doubts about the effectiveness of Ottawa’s measures to extend the amortization limit for first-time homebuyers, as it may not address the fundamental issues leading to unaffordability. The economists also note that Ottawa’s plans to limit the pace of immigration in the coming years may provide some relief on housing prices but caution that it could take time to address the imbalances in the housing sector. Overall, while there have been some improvements in housing affordability, significant challenges remain in ensuring that Canadians can access affordable housing in the future.
