Canada's housing market softest in decades

Canada's housing market is experiencing its most significant downturn in decades, with affordability reaching record lows across the country. According to a recent report by the Royal Bank of Canada (RBC), the cost of owning a home has escalated to levels unseen in the nation's history, particularly in major cities like Vancouver and Toronto. In Vancouver, the situation is especially dire, with the cost of homeownership consuming over 106% of the median household income, signaling a full-blown crisis.

The primary driver behind this affordability crisis is the Bank of Canada's aggressive interest rate hikes, initiated in early 2022 to combat inflation. These hikes have significantly increased mortgage rates, making monthly payments more burdensome for potential homeowners. While home prices have seen a slight decline of 0.5% in the last quarter, the increased cost of borrowing has more than offset these reductions, pushing the average monthly mortgage payment to nearly $4,000.

This financial strain has led to a substantial decrease in home sales, which have plummeted by 45% since their peak in early 2021. The Canadian Imperial Bank of Canada (CIBC) notes that per capita sales are now at their lowest since the 2008 recession, indicating a market in "recessionary" territory. Despite a growing population and a robust economy, the high cost of homeownership is deterring many Canadians from entering the market.

Younger Canadians, particularly those aged 25 to 39, are disproportionately affected by the housing affordability crisis. This demographic has experienced the most significant decline in homeownership rates since 2011, facing challenges such as higher education costs, stagnant wages, and escalating housing prices . The combination of these factors has made it increasingly difficult for young adults to purchase homes, leading to a generational shift in homeownership trends.

Looking ahead, RBC anticipates that the Bank of Canada may begin to lower interest rates by mid-2024, potentially offering some relief to prospective homebuyers . However, experts caution that even with reduced rates, restoring housing affordability to pre-pandemic levels will be a gradual process. Desjardins Economic Studies emphasizes that increasing housing supply is the only sustainable long-term solution to the affordability crisis, estimating that Canada needs to build 5.8 million new homes within the next decade .

In the meantime, many Canadians are adjusting their expectations and exploring alternative housing options. Some are relocating to more affordable regions, while others are delaying homeownership altogether. The current state of the housing market underscores the urgent need for comprehensive policy measures and collaborative efforts between government and the private sector to address the ongoing affordability challenges.