Despite interest rates trending downward and home prices slipping in some cities, the dream of homeownership in Canada remains elusive for many.
For would-be buyers watching the Bank of Canada ease its key interest rate in recent months, bringing it to 3.25% in early 2025, there was hope that a long-awaited window of opportunity might finally be opening. But for most, the math still doesn’t add up.
Lower rates, but not a buyer’s market
In a typical real estate cycle, lower mortgage rates fuel demand. Buyers rush in, credit becomes easier to access, and homes change hands more quickly. But that hasn’t happened this time, at least not to the extent many Canadians expected.
According to Robert Hogue, assistant chief economist at RBC, while recent interest rate cuts have provided some relief, affordability remains a significant challenge. He notes in an October 2024 report that the modest improvement in affordability is expected to grow into more significant relief for homebuyers in the coming months, as the Bank of Canada is expected to continue cutting rates.
National Bank’s Housing Affordability Monitor tells a similar story. As of early 2025, the median household would need to nearly double its income just to qualify for a mortgage on a benchmark home in most major markets, including Toronto, Vancouver and even smaller cities, such as Victoria and Ottawa.
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A market stuck in limbo
While prices have declined slightly in some regions, down 1.4% year-over-year nationally, according to CREA, the modest dip hasn’t been enough to reset the market.
“Even if prices fall further, it won’t be enough to restore affordability without a sharp drop in interest rates or a surge in incomes,” Tony Stillo, director of economics for Oxford Economics told Reuters last September.
And while the Bank of Canada is expected to continue cutting rates through 2025, economists don’t see that translating into a buyer’s market any time soon. According to a Reuters poll of property experts, national home prices are forecast to rise by 2.8% in 2025 and 3.0% in 2026, outpacing the expected inflation rate of 2.5%.
Why prices aren’t falling faster
One of the biggest reasons home prices aren’t coming down faster is a stubbornly short supply.
According to the Canada Mortgage and Housing Corporation (CMHC), the country needs 5.8 million new homes by 2030 to restore affordability, but current construction rates are falling far short of that target.
Meanwhile, population growth continues to put pressure on housing demand. Canada welcomed over 744,000 new permanent and temporary residents in 2024, with the vast majority of that growth, 98.5%, driven by international migration.
In response, policymakers have introduced measures aimed at helping first-time buyers, such as extending amortization periods for insured mortgages to 30 years and increasing RRSP withdrawal limits under the Home Buyers’ Plan. However, critics argue these demand-side interventions won’t be effective without major efforts to boost housing supply.
“The solutions are out there. We don’t have to do anything novel — we just need to look at what the other provinces are doing better than us and adopt some of those reforms,” said Mike Moffatt, senior director at the Smart Prosperity Institute, in a November 2024 interview with Compass News.
A long road to recovery
Canadians hoping for a return to pre-pandemic affordability levels will likely be waiting a long time. RBC predicts that housing affordability, measured by the percentage of income needed to cover mortgage payments, won’t return to long-term averages until at least 2030. Oxford Economics is even more pessimistic, forecasting that full affordability may not be restored until 2035.
That’s especially true in urban centres. Toronto and Vancouver are likely to remain permanently unaffordable for the average household unless there are seismic changes in housing policy, wage growth or both.
What Canadians should watch for
For now, buyers are being urged to remain cautious,especially those hoping for dramatic price drops. While some regional markets may see modest shifts, the national trend points in a different direction. Without a significant boost in housing supply or bold new policy interventions, meaningful improvements in affordability remain out of reach.
Experts suggest Canadians may need to adjust to a “new normal” where elevated home prices and tighter lending conditions are here to stay. Rate cuts alone won’t unlock the market. Without more housing, stronger wage growth and comprehensive policy reforms, Canada’s affordability crisis is likely to persist, and for many prospective buyers, the wait could be longer than expected.
Sources
1. RBC: Buying a home gets a tad more affordable as rates drop (October 8, 2024)
2. Reuters: Canada’s housing affordability crisis may persist for years despite rate cuts (September 30, 2024)
3. Reuters: Canada home prices to rise modestly on subdued demand despite rate cuts: Reuters poll (September 3, 2024)
4. Compass News: Province and feds must play nice to solve housing crisis: economist (November 10, 2024)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
