- Homeownership costs have eased for three consecutive quarters in Canada. The share of income a household needs to cover mortgage payments, property taxes and utilities has fallen nationwide to 58.4% by Q3 after reaching an all-time high of 63.8% in Q4 2023.
- Still, affording a home is a stretch for average Canadians. The massive price escalation during the pandemic and subsequent spike in interest rates considerably raised the bar to homeownership. RBC’s affordability measures remain close to worst-ever levels nationally and in many major markets despite this year’s improvement.
- Affordability trends are heading in the right direction across the country. RBC’s affordability measures dipped in all markets we track in Q3. (A decline in the measure represents a gain in affordability.) Vancouver, Victoria and Toronto recorded the largest drops again. >More relief is likely to come in 2025. We expect the Bank of Canada will cut its policy rate further next year, which should drive down ownership costs. Steady gains in household income will also help, along with regulatory changes allowing first-time homebuyers to choose a 30-year amortizations on insured mortgages. Any sizable price increases would be a setback, though.
Rising income takes centre stage
The deep housing market slump got the ball rolling last year with a modest depreciation of property values easing homeownership costs. Then interest rate cuts this year more solidly set affordability trends on a restorative course.
But in the background throughout this period—or most of the time—has been the growth in household income. A boost to income generally enhances one’s ability to afford a home. In the past two quarters, sizable income rises supported by firm (nominal) wage gains have delivered much of the improvement in affordability.
Our estimate of median household income in Canada was up an average 4.4% over Q2 and Q3 from the same period a year ago. This shaved 0.9 percentage points and 1.2 percentage points off RBC’s aggregate affordability measure in Q2 and Q3, respectively—more than double the average in the past five years.
The impact of income gains dwarfed all other factors combined, which amounted to -0.3 percentage points in each of those quarters. Slight price appreciations, however, partly offset the benefits of lower interest rates.
Positive dynamics have longer to run
The impact of higher wages on affordability will be hard to maintain. Nominal wage gains are likely to moderate as slack in Canada’s labour market continues to build over the first half of 2025. Still, we expect continued growth in household income will facilitate further improvement in affordability in the year ahead. A greater share of the progress is poised to come from lower interest rates. We see the BoC cutting its policy rate by another 125 basis points to 2% by mid-2025, which will bring mortgage rates lower.
In our base case scenario, home prices will see small increases, longer-term interest rates will moderately drop and household income will grow steadily but see diminishing gains until the end of 2025. This will lead to the reversal of more than a third of the massive deterioration in RBC’s aggregate affordability measure that happened during the pandemic.
Mortgage rule changes will further ease monthly payment strains for some buyers
As of December 15, first-time homebuyers can amortize a mortgage over 30 years (up from 25 years) on all home purchases. As we estimated in the previous edition of Housing Trends and Affordability, this change would reduce monthly payments by approximately 8% on the purchase of a home at the national benchmark price.
Victoria: Progress with persistent challenges
Victoria experienced the largest drop in ownership costs in 2024, yet affordability remains a significant challenge. At 69.2% of median household income, affordability remains the third-worst among tracked markets. These high costs have suppressed transaction volumes through most of the year, though activity picked up noticeably this fall with lower interest rates drawing buyers back into the market. Higher inventories have also supported the recent pickup. Supply-demand conditions have tightened over the last few months, which could heat up prices more.
Vancouver area: Extreme affordability strains ease a little
It remains extremely difficult for average households to afford a home in the Vancouver area despite significant improvements in the affordability measure this year. The 8.8 percentage-point drop in RBC’s aggregate affordability measure in the first three quarters to 96.7% reversed only a fraction of the pandemic-era spike. Exceptionally strained conditions weighed heavily on resale activity in the past two and a half years, hovering near cyclical lows. However, signs of renewed vigour emerged this fall, which will be sustained in 2025. Still, with inventories growing and market conditions generally balanced, we see prices staying largely flat in the near term.
Calgary: Slight affordability gain keeps market buzzing
Calgary is a very busy housing market fueled by rapid population growth, which supports above pre-pandemic transaction levels and steady price appreciation. Earlier signs of cooling have receded this fall with lower interest rates re-energizing homebuyer demand. Affordability challenges eased in Q3 with RBC’s aggregate measure dipping 0.5 percentage points to 42.2%. The measure had reached a 15-year high at the end of 2023. Inventories have been rebuilding since falling to a decade-low last year. Still, the market continues to be short on supply with sellers holding a firm grip on prices. We expect this will keep property values on an upward trajectory.
Edmonton: Stepping in the limelight
Edmonton has emerged as one of Canada’s hotter markets with vibrant resale activity nearing all-time highs and relatively favourable affordability. RBC’s aggregate affordability measure sits at 33.6%, marginally above the long-term average (32.3%) and just about than half the national average (58.4%). Strong in-migration, low inventories and tight supply-demand conditions are likely to sustain solid price growth in the near term.
Saskatoon: Flying high
Saskatoon’s housing market is soaring. Strong population growth, declining interest rates and manageable ownership costs are driving activity near record levels. Resale transactions have grown 7% so far this year and lately stood 50% above pre-pandemic levels. The aggregate affordability measure (32.6%) is close to historical norms, suggesting barriers to entry are moderate. Supply isn’t keeping up with booming demand, though, which puts the heat on property values. We expect home prices to continue to appreciate steadily.
Regina: Strong all-round
Solid fundamentals, including booming population growth and affordable housing costs, are powering Regina’s market to historic heights. Resale volumes are near early-pandemic levels. RBC’s aggregate affordability measure (27.1%) is the best among the markets we track. But this status will be hard to maintain. Exceptionally tight supply is poised to drive prices higher, limiting any improvement in affordability in the coming quarters.
Winnipeg: Carrying solid momentum despite challenges
Winnipeg has fully recovered from earlier interest rate shocks with renewed momentum this fall pushing resale activity slightly above pre-pandemic levels. Interest rate cuts since the summer no doubt have drawn more buyers to the hunt, but affordability remains stretched. Despite declining this year, RBC’s aggregate measure (32.1%) hasn’t come off much from its worst level in more than 30 years at the end of 2023 (33.4%). A tight supply environment is likely to keep upward pressure on prices, further slowing any reduction in homeownership costs.
Toronto area: Long road ahead in the restoration process
Toronto homebuyers enjoyed some improvements in affordability this year, but ownership costs remain prohibitively high for many waiting on the sidelines. Covering homeownership expenses requires more than 75% of a median household’s income—still far exceeding the one-third threshold usually defining an affordable proposition. Such strained conditions have held back market recovery until recently. Interest rate cuts, however, have reinvigorated activity in the past couple of months. We think a measured pace will be sustained going forward. This would support largely stable prices by keeping the overall supply-demand equation in balance. However, condo values may face further downward pressure as a wave of new units boosts supply.
Ottawa: A gradual recovery
Stretched affordability conditions have restrained the pace of Ottawa’s market recovery with home resales only recently closing in on pre-pandemic levels. RBC’s aggregate measure entered 2024 at an all-time high of 52.1% and has eased only modestly since then, reaching 47.3% by Q3. We expect lower interest rates will drive further affordability relief ahead, though the extent and speed at which it will occur may disappoint many potential buyers. A recent firming of supply-demand conditions may be setting the stage for hotter price appreciation, which would minimize any reduction in ownership costs.
Montreal area: Pulling ahead
Montreal’s market has shifted to higher gear since the summer—breaking from the slow recovery trend of the previous year and a half. Transaction volumes jumped 34% this fall from the same period in 2023, and are within striking distance of pre-pandemic highs. Montreal is emerging as one of the hotter markets in Canada with supply getting tighter by the day. Inventories are no longer rebuilding and prices are rising. These trends are likely to endure in the near term, but it will get harder for affordability to improve. RBC’s aggregate measure fell slightly this year to 49.4% from a decades-high level of 52.4% at the end of 2023. We expect further progress to be slim until supply starts to rebuild again.
Quebec City: Resilient despite elevated costs
Quebec City’s market remains active with transactions up 16% year-over-year despite elevated ownership costs. RBC’s aggregate affordability measure of 34.2% remains close to a three-decade high. And, it hasn’t budged much this year as strong price increases have largely offset the benefits of interest rate cuts. We see the market’s tight supply-demand conditions continuing to drive up prices, limiting improvement in affordability.
Saint John: Supply constraints generate heat
Activity has barely lifted off from cyclical lows in Saint John this year. Home resales were up just 2.6% over the first 11 months of 2024—less than half the average Canadian increase. But, buyer motivation may not be entirely at fault. Low supply seems a significant constraint. Supply-demand conditions have remained exceptionally firm, which has heightened competition between buyers and heated property values. Price gains have been especially strong this fall. Housing affordability has seen little improvement as a result. RBC’s aggregate measure at 33.3% is just off its all-time high of 34.7% in Q4 2023. We think it could worsen in the period ahead if prices continue to escalate rapidly.
Halifax: High costs pinch buyers
Halifax is recovering slowly with the impact of strong population growth offset by near-record ownership costs and low inventory levels. Buyers continue to have a difficult time finding a home they can afford despite affordability improving slightly this year. RBC’s aggregate measure of 44.8% is far above the long-run average of 32.5%. It also means buyers have significant budget limitations to outbid the competition. This is keeping price appreciation generally muted. We expect current trends to persist in the near term and sustain further reductions in ownership costs.
St. John’s: Low inventory limits options for buyers
The St. John’s market is thriving on unprecedented in-migration with transactions surpassing pre-pandemic levels by more than 40%. However, low inventory limits options for buyers. Ownership costs remain relatively affordable with RBC’s aggregate measure at 28.9%—the second lowest among tracked markets. Modest price gains are expected to continue.
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