Despite falling interest rates and prices, home affordability isn’t set to improve any time soon, report says

Despite recent declines in interest rates and home prices, a new report indicates that housing affordability in Canada is unlikely to improve in the near future. The analysis suggests that while borrowing costs have eased slightly, they remain significantly higher than pre-pandemic levels, and home prices, although down from their peak, are still elevated. These factors continue to pose challenges for prospective homebuyers, particularly first-time purchasers.

One of the primary reasons affordability remains strained is the persistent imbalance between supply and demand in the housing market. Despite a slowdown in price growth, the limited availability of homes for sale keeps competition high, sustaining price levels. This situation is exacerbated by ongoing delays in new housing construction, which fail to meet the needs of a growing population.

Additionally, while interest rates have decreased from their peak, they are still considerably higher than the historically low rates seen during the early stages of the pandemic. This means that monthly mortgage payments remain substantial, limiting the purchasing power of many Canadians. For instance, even a modestly priced home can result in monthly payments that are unaffordable for average-income earners.

The report also highlights that wage growth has not kept pace with the rising costs associated with homeownership. As a result, the proportion of income required to service a mortgage has increased, making it more difficult for individuals and families to qualify for loans and manage ongoing expenses. This financial strain is particularly acute in major urban centers where housing costs are highest.

Furthermore, policy measures aimed at cooling the housing market, such as stricter mortgage stress tests and foreign buyer taxes, have had limited success in improving affordability. While these initiatives may have tempered speculative buying to some extent, they have not addressed the fundamental issue of insufficient housing supply. Without significant increases in the construction of affordable homes, the market is unlikely to see meaningful improvements.

In conclusion, the report suggests that unless there are substantial changes in housing policy and a concerted effort to increase the supply of affordable homes, Canadians will continue to face challenges in achieving homeownership. The combination of high prices, elevated interest rates, and stagnant wage growth creates a complex environment that is not conducive to improved affordability in the short term.