Canada's housing affordability crisis seems here to stay, even with the Bank of Canada hinting at rate cuts. High home prices and limited spending power keep many Canadians from buying homes.
Canada’s five-year mortgage rate has dipped by 150 basis points since last year, now sitting at about 4.75%. However, the drop isn't sparking a home-buying frenzy. Despite the lower rates, costs remain sky-high for many potential buyers. Average house prices have surged over 30% since April 2020, and in Toronto, home sales are at a 20-year low due to these exorbitant prices. Meanwhile, real household disposable income has grown by 2.3% since the pandemic, and nominal income by 21%. But monthly interest payments on a five-year fixed-rate mortgage are still 40% higher than in January 2020, even with recent reductions.
Declines in mortgage rates haven't significantly boosted affordability in pricey markets like Toronto and Vancouver. Despite cheaper mortgage rates, many borrowers face rates of 6-7%, which continues to strain affordability.
Experts predict it could take a decade for Canada’s housing market to become affordable again. The government’s recent policy change to allow 30-year amortization for first-time buyers aims to lower monthly payments and encourage home construction. However, critics argue it could increase demand and push prices higher. Prime Minister Justin Trudeau’s poll numbers have taken a hit due to the crisis, and while his mandate ends in 2025, an early election could be on the cards.
