The dream of homeownership remains elusive for many Canadians as high mortgage rates and soaring home prices persist. Despite expected rate cuts from the Bank of Canada, affordability challenges continue to impact potential buyers, especially in major cities like Toronto and Vancouver. Rising interest rates, stagnant real income growth, and surging immigration have further exacerbated the housing crisis. Although the government introduced longer mortgage amortisation periods to ease the burden, critics argue it may fuel demand and push prices higher. Experts predict that housing affordability won't improve significantly for at least a decade, affecting future elections and government policies.
For many Canadians, the dream of homeownership remains distant, as high mortgage rates and elevated housing prices continue to strain affordability. Despite expectations of further rate cuts by the Bank of Canada, the housing affordability crisis-one that has eroded Prime Minister Justin Trudeau's support-is likely to persist, creating a significant issue as the country approaches the next election. Trudeau's Liberal government faces growing pressure as the Conservative opposition aims to capitalise on public dissatisfaction and end his nine-year tenure before the mandate expires in October 2025.
Tony Stillo, director at Oxford Economics, recently stated that Canadians should not expect housing affordability to return to pre-pandemic levels for at least a decade. The affordability gap has only worsened since interest rates began rising two years ago. Meanwhile, an influx of immigrants has driven up Canada's population to record numbers, further inflating demand for housing and pushing prices higher. Although mortgage rates have started to ease, with the five-year fixed mortgage rate now around 4.75%-a reduction of 150 basis points from the previous year-the decrease has not been sufficient to trigger a substantial recovery in home buying activity.
Robert Hogue, assistant chief economist at the Royal Bank of Canada, explained that even a slight reduction in rates, which might save a buyer CAD 50 to CAD 100 per month, does little to improve overall affordability. Especially in cities like Toronto and Vancouver, where housing markets are notoriously expensive, many potential buyers remain priced out. While some buyers may re-enter the market next year as rates continue to fall, it is unlikely to restore balance in housing demand.
The core issue lies in the mismatch between home prices, interest rates, and household income. Since the pandemic began, Canadian home prices have risen by over 30%, while interest rates climbed as much as 4.75 percentage points before recently easing. Yet, real household incomes have only grown by 2.3%, according to Statistics Canada, which makes the housing market even more inaccessible. Even with the rate cuts, mortgage payments on a five-year fixed-rate loan are still 40% higher than they were at the start of 2020.
Restoring affordability requires a minimum 10% reduction in Canadian home prices and a significant halving of mortgage interest rates. Toronto's housing market, often a bellwether for the country, is experiencing 20-year lows in home sales due to record high prices. John Pasalis, president of Realosophy Realty, observed that although falling rates may eventually revive the market, they won't return it to the frenetic pace of recent years.
Recent government measures, such as extending mortgage amortisation periods to 30 years for first-time and new home buyers, aim to ease the burden. However, critics warn that such policies could unintentionally fuel higher demand and push prices further upward. Finance Minister Chrystia Freeland defended the move, arguing that it would boost housing supply by encouraging developers to build more homes to meet rising demand.
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