Canada's Housing Affordability Still Struggling

Canada's housing affordability is still not back to normal, despite some improvement in recent years. According to BMO Capital Markets, the country's housing market is slowly recovering from a low point reached in late 2023, but it has yet to return to its long-term median levels of affordability.

The bank tracks affordability by looking at how much disposable income a typical household would spend on mortgage payments and utilities. As of now, this share is still well above BMO's benchmark of 35.7%, indicating that homes are still relatively expensive compared to paychecks. In fact, the bank notes that even with lower interest rates and cooler home prices, which have dropped about 20% from their peak in 2022, affordability has not fully rebounded.

The main issue is that the Bank of Canada may be turning more hawkish, meaning it will prioritize keeping inflation under control over cutting interest rates to make monthly payments cheaper. This leaves two slower fixes for improving affordability: either wages grow significantly or home prices continue to fall relative to paychecks.