Canada Home Affordability Set to Improve as Rates Fall and Incomes Rise

A recent report predicts that housing affordability in Canada will see positive changes with falling interest rates and rising incomes, making home ownership more accessible for Canadians.

Housing affordability in Canada is expected to see some improvement in the coming years, according to a recent report. The combination of falling interest rates, stable home prices, and rising incomes is projected to make purchasing a home more accessible for Canadians. However, even with these positive trends, affordability is still expected to be strained by 2027.

The forecast outlined in the report includes a 75 basis point decline in five-year mortgage rates to 4.25 per cent, along with flat home prices in 2024. This will be followed by three years of 3 per cent annualized price growth and per-capita income growth of just under 3 per cent. While progress is anticipated, the process of unraveling the affordability challenges that have built up over the years will be gradual.

One of the key issues highlighted in the report is the lack of housing supply to keep up with the rapid population growth in Canada. The influx of temporary residents, such as foreign workers and students, has contributed to a population growth rate of 3.2 per cent, one of the highest in the world. While the federal government is taking steps to limit the number of non-permanent residents, population growth is still expected to remain positive.

To return to pre-pandemic affordability levels, significant changes would be needed, such as a 15 per cent decrease in home prices, a 25 per cent increase in incomes, or a drop in mortgage rates to 3 per cent or lower. These adjustments would need to be made while keeping other factors constant.

While housing affordability in Canada is expected to see some improvement in the coming years, significant challenges remain. Policymakers will need to address the issue of housing supply to ensure that affordability continues to improve for Canadians.