Canada’s Housing Affordability Crisis May Continue for Years Despite Rate Cuts, According to Reuters

By Promit Mukherjee

OTTAWA – The dream of homeownership may remain elusive for many Canadians in the foreseeable future, as mortgage costs are not expected to decline sufficiently to balance high home prices and stagnant purchasing power, according to economists and real estate professionals.

Despite predictions that the Bank of Canada will continue to reduce interest rates in the coming months, the challenge of housing affordability—which has negatively impacted Prime Minister Justin Trudeau’s approval ratings—is likely to persist leading up to the next election.

The mandate for the Liberal minority government is set to conclude at the end of October 2025; however, an election could take place sooner, as the Conservative Party is eager to challenge Trudeau’s nearly nine-year tenure.

Tony Stillo, director at forecasting and analysis firm Oxford Economics, expressed skepticism about a return to sustained housing affordability, predicting it could take a decade.

Since interest rates began rising two years ago, many Canadians have been unable to enter the housing market. Compounding this issue is a significant influx of immigrants that has pushed the country’s population to new heights, further driving demand and sales prices.

While interest rates have started to ease, the most affordable five-year fixed mortgage rate is approximately 4.75%, which represents a drop of 150 basis points compared to a year ago. However, this decrease, along with expectations of further reductions, has not sparked an increase in home purchases.

According to Robert Hogue, assistant chief economist at a major Canadian bank, even a reduction of $50 or $100 in monthly payments from decreasing interest rates remains unaffordable for many potential buyers still on the sidelines.

In Canada’s pricier markets, like Toronto and Vancouver, many prospective buyers remain priced out. While some individuals may be able to purchase homes as soon as next year, this will not be enough to restore market balance.

Housing affordability hinges on home prices, interest rates, and borrowers’ incomes. Since the pandemic began, these metrics have shifted unfavorably. Canadian home prices have risen by over 30% since April 2020, while interest rates increased sharply before beginning to decline this past June.

Data shows that average monthly payments on a five-year fixed mortgage are still about 40% higher than they were in January 2020, despite a decrease from last year’s peak. In that same period, inflation-adjusted household income has only climbed 2.3%, with nominal income rising by 21% according to official estimates.

To bring affordability back to pre-pandemic levels, home prices would need to drop by at least 10%, and mortgage interest rates would have to be halved from current figures.

In Toronto, which is often seen as a key indicator of the Canadian real estate landscape, home sales have hit roughly 20-year lows due to astronomical prices. Real estate broker John Pasalis remarked that the market remains "unbelievably unaffordable," though he anticipates activity could increase as interest rates decline, but he does not foresee a return to a "crazy market."

While the lowest five-year mortgage rates have significantly decreased, many borrowers, particularly those with higher risk profiles, only qualify for loans with rates still hovering between 6% and 7%.

A recent change in government policy allows first-time buyers and those purchasing newly constructed homes to obtain 30-year amortizations instead of the previous 25-year terms. Although this change aims to reduce monthly repayments and make homeownership attainable for more individuals, critics argue it may inadvertently heighten demand and further inflate prices.

In response to concerns, Finance Minister Chrystia Freeland stated that the initiative would support supply by encouraging builders to construct more homes to accommodate the growing demand for new housing.