Lower rents could make it easier for new buyers to afford a downpayment, but home prices aren't exactly nosediving
Rental prices continue to fall across Canada, sliding for a sixth straight month in March in a boost to beleaguered renters who’ve faced an alarming spike in costs since 2020.
Average asking rents are still nearly 18% higher than at the beginning of the COVID-19 pandemic five years ago, according to a new joint report by Rentals.ca and Urbanation – but have been on a steady downward trend as supply ramps up in major markets including Toronto.
Sky-high rental costs remain one of the biggest challenges facing aspiring young homebuyers across Canada, squeezing budgets and freezing plenty of younger Canadians out of the housing market.
Lower rents could boost savings and make it easier for newer buyers to stump up a downpayment. Still, it remains to be seen whether the cost of renting will plunge enough to bring those potential mortgage borrowers in from the cold.
Sharp cuts to Canada’s immigration numbers are expected to see rent demand dip further in the coming months, potentially adding fresh downward pressure on rental prices.
“Reduced immigration is mainly non-permanent resident – so foreign students, people who are coming here on work permits,” Charles St-Arnaud (pictured top), chief economist at Alberta Central, told Canadian Mortgage Professional. “Most likely, those individuals are mainly renters, not [homebuyers].
“So the question is: What’s going to happen? You’re already seeing rent in Toronto, Vancouver, and even Calgary coming down – at least on what the asked rent on the market is. They’re coming down because the demand for rentals is coming down.”
RBC Economics warns that the ongoing US trade war is stalling Canada’s housing recovery, with home resales down 12% since January. Ontario and BC are hit hardest, while the Prairies and Atlantic Canada remain more resilient.https://t.co/hQo2OF5AyT
— Canadian Mortgage Professional Magazine (@CMPmagazine) April 16, 2025
Sky-high home prices unlikely to plummet anytime soon
While lower shelter costs might increase renters’ monthly savings, a significant challenge remains the eyewatering amounts required to purchase a home – and there’s no sign of big improvement on that front even despite a cooling national housing market.
The National Composite MLS Home Price Index (HPI), a gauge used by the Canadian Real Estate Association (CREA) to measure average house prices, fell by 1% between February and March 2025 and has ticked steadily lower since peaking in January 2022.
But while that figure has dropped to $678,331 – a year-over-year drop of 3.7% – it remains dramatically higher than a decade ago.
And St-Arnaud suggested an improving rental market, coupled with the continuing impossibility for many younger Canadians of affording a home on their own, could continue to weigh against the housing market’s long-term prospects.
“Would-be buyers that are currently renters might have less incentive to jump into homeownership because they’re not making the calculation, ‘While my rent is increasing at 10% a year, if I buy now I can lock my cost in some ways, at least for the next five years with my mortgage,’” he explained. “So you might have a bit less of that urgency to ownership, especially from those who are renters right now.
“We’re trying to incentivize a lot of purpose-built buildings for rentals and I’m not sure in the long term if it’ll be helpful – but in the short term, you’ll have supply of those units coming up when a lot of the demand may be evaporating on it over the next two years.”
Housing affordability remains a huge hurdle for many Canadians
In Toronto, homeownership expenses accounted for more than 75% of a median household’s income at the end of 2024, a Royal Bank of Canada (RBC) study showed – highlighting the vast challenges facing even older Canadians in making ends meet on housing.
While there’s been plenty of focus in the current federal election campaign on boosting housing supply, St-Arnaud said that’s only part of the puzzle that needs to be solved to restore affordability for younger Canadians.
“It’s hard for any young person to save any money right now, especially when you consider the fact that the income you can earn in Toronto is nothing compared to what you would earn in places like London and New York,” he said.
“So that makes your purchasing power much lower just because of that housing cost. That’s why I’m not saying that we shouldn’t be building and we shouldn’t be helping on that front. The big issue we have is that we have a whole generation that’s paying way more as a share of their income for shelter than previous generations, and they cannot move ahead.”
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