Between the end of 2023 and the middle of 2024, Canadians experienced a brief period of improved housing affordability, thanks to falling interest rates, stabilized home prices, and rising household incomes. These factors combined to provide a temporary relief for potential homebuyers, easing the strain of high borrowing costs and stubbornly elevated property prices. However, the momentum behind these affordability gains appears to be slowing down, with the improvements now largely viewed as part of the past. Going forward, further progress in affordability hinges mainly on the trajectory of home prices and household income growth, both of which face significant challenges.
As the housing market stabilizes, the potential for further affordability improvements becomes more uncertain. Interest rates have reached a relatively stable plateau, leaving only price movements and wage trends to drive meaningful changes. For affordability to improve substantially, either home prices would need to fall considerably, or household incomes would need to rise significantly. However, these scenarios appear unlikely in the near future, as the broader economic landscape presents ongoing hurdles. One such challenge is the weakening labor market, which has begun to exert pressure on household finances, undermining the ability of many buyers to enter or remain in the housing market.
The boost in household income over the past year was a key factor in improving affordability, with wage growth accounting for a significant portion of the recent decline in national affordability measures. This increase in earnings helped offset the impact of high borrowing costs and stagnant home prices. Yet, as the labor market weakens and wage growth slows, the buffer that previously supported affordability is diminishing. Employment conditions are deteriorating, and this trend is starting to erode the purchasing power of potential buyers, especially in regions already facing housing market pressures.
Regional housing markets show differing levels of affordability, with some areas benefiting from improved conditions while others remain under significant stress. In Ontario, for example, rising unemployment and the effects of an ongoing trade dispute have placed additional strain on the economy, making housing even less affordable. Vancouver continues to struggle with some of the worst affordability conditions in the country, while Calgary sees a more positive trend due to strong construction activity and an abundance of new housing supply. Across Canada, affordability remains a major concern, with only modest gains expected in the coming years, tempered by regional differences and broader economic challenges.