Housing affordability in Canada shows little progress as incomes offset high costs

Affordability for Canadian homebuyers improved only marginally in the second quarter, marking the smallest gain in nearly a year. The modest improvement was driven entirely by rising household incomes, as interest rates and home prices held steady. This price stability interrupted a previous pattern of steady declines. The proportion of income required to cover the costs of home ownership remains significantly higher in the country's two most expensive markets. In Vancouver, homeowners must devote 83.9 per cent of their household income to ownership costs, while in Toronto the figure is 64.1 per cent. Both numbers are well above the national average of 52.8 per cent, though that average has fallen from a peak of 63.6 per cent in 2023. Mike Candeloro, a senior portfolio manager with RBC Dominion Securities, said meaningful improvement for buyers will likely require stronger housing starts and rising wages, especially as interest rates climb.

He warned that the risk of higher rates through 2027 could put new downward pressure on home prices. "Rising mortgage rates would likely offset any pricing benefit," Candeloro wrote. "This situation, in turn, could maintain pressure on the affordability front." The economic backdrop saw no expansion in July, following average monthly growth of 0.5 per cent from April to June.

An advance estimate from Statistics Canada points to a 0.2 per cent rise in GDP for August, suggesting third-quarter growth will be slower than the 3.3 per cent jump recorded in the second quarter. Early data from August showed little sign of major economic damage from new U.S. tariffs on some Canadian exports, which took effect Aug. 22. Labour indicators and consumer spending have so far remained resilient, though future reports will be needed to gauge the full impact on vulnerable sectors.

Economists generally expect slower growth in the third quarter as earlier boosts from auto production and trade recovery fade. "New tariff-related uncertainty and financial tightening from rising bond yields represent meaningful downside risks, although government support may help soften the impact for businesses and workers," Candeloro noted. Bank of Canada policymakers must now weigh growth and inflation risks against this resilient economic data. Most economists anticipate the central bank will hold its key rate steady through 2026 before implementing gradual increases in 2027. Candeloro added that investment portfolios should aim to participate in a durable economic expansion while being mindful of market concentration risks.

With files from North Bay Nugget