Mortgage payments decline, but high prices keep homeownership out of reach for many
Housing affordability in Canada is improving, but the path to homeownership remains daunting for most Canadians, according to a new analysis by National Bank of Canada economists.
While mortgage payments as a share of income have declined for the third straight quarter, home prices and saving requirements are still far above historical norms, keeping many potential buyers on the sidelines.
In the third quarter of 2024, affordability saw modest gains as rising incomes and falling mortgage rates helped reduce financial pressures. Mortgage payment as a percentage of income (MPPI) for the median-priced Canadian home, valued at $795,540, dropped to 56.6%. This marked a 1.3-percentage-point improvement from the second quarter and a 3.4-percentage-point drop from the same time last year.
However, the current MPPI remained significantly above the long-term average of 40.7% since 2000.
NBC economists Kyle Dahms and Alexandra Ducharme said that rising five-year bond yields could stall this progress. “The recent brightening may be short-lived,” they cautioned, adding that affordability gains might reverse if borrowing costs tick upward.
Housing affordability in Canada is improving, but the path to homeownership remains daunting for most Canadians, according to a new analysis by National Bank of Canada economists.
While mortgage payments as a share of income have declined for the third straight quarter, home prices and saving requirements are still far above historical norms, keeping many potential buyers on the sidelines.
In the third quarter of 2024, affordability saw modest gains as rising incomes and falling mortgage rates helped reduce financial pressures. Mortgage payment as a percentage of income (MPPI) for the median-priced Canadian home, valued at $795,540, dropped to 56.6%. This marked a 1.3-percentage-point improvement from the second quarter and a 3.4-percentage-point drop from the same time last year.
However, the current MPPI remained significantly above the long-term average of 40.7% since 2000.
NBC economists Kyle Dahms and Alexandra Ducharme said that rising five-year bond yields could stall this progress. “The recent brightening may be short-lived,” they cautioned, adding that affordability gains might reverse if borrowing costs tick upward.
Big cities, big problems
For many Canadians, saving for a down payment continues to be an uphill battle. It now takes nearly six years of saving 10% of pre-tax income to afford the $54,554 down payment on a median-priced home, nearly double the historical average of 3.3 years.
This challenge is exacerbated in high-demand cities like Vancouver and Toronto, where saving times are far higher. In Vancouver, it would take almost 28 years to save for a down payment, while in Toronto, it would take 23.5 years – both triple their long-term averages.
The affordability picture varies widely across the country. Cities like Quebec City, Edmonton, and Winnipeg report some of the lowest MPPI levels, while Vancouver, Toronto, and Victoria remained the least affordable.
In Vancouver, the MPPI for a median-priced home ($1,280,656) sat at a staggering 92.3%, meaning nearly all of a typical household’s income would go toward mortgage payments. Toronto fares slightly better, with an MPPI of 78.4%, but both cities illustrate the persistent unaffordability that defines Canada’s urban housing markets.
Condominiums present a more accessible option, with down payment saving times significantly shorter. For example, saving for a down payment on a condo would take 4.5 years in Toronto and 5.5 years in Vancouver.
Modest improvements ahead
Upcoming changes to federal housing policy, including extending 30-year amortization periods for first-time buyers, could provide some relief but may also push home prices higher, according to the report.
“There are grounds for questioning whether such a measure really contributes to affordability when a mortgage will need to be paid for an additional five years,” Dahms and Ducharme wrote.
Read more: Interest rates to remain key factor in 2025 mortgage market, says executive
Other factors, such as a slowdown in immigration and a cooling labour market, could help moderate demand in the short term. However, the economists also noted that Canada’s housing supply remains out of sync with its population growth, keeping upward pressure on prices.
The report predicted home prices will rise slightly in 2025, likely outpacing inflation. Mortgage rates are expected to decline further, though fixed rates may not fall as quickly due to US bond market influences. Rising incomes could help balance these factors, continuing the gradual improvement in affordability.
“All told, we believe home prices should rise next year, but they may only slightly outpace headline inflation,” the economists wrote. “Affordability may continue to improve, but it is unlikely to return to pre-pandemic levels anytime soon.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
For many Canadians, saving for a down payment continues to be an uphill battle. It now takes nearly six years of saving 10% of pre-tax income to afford the $54,554 down payment on a median-priced home, nearly double the historical average of 3.3 years.
This challenge is exacerbated in high-demand cities like Vancouver and Toronto, where saving times are far higher. In Vancouver, it would take almost 28 years to save for a down payment, while in Toronto, it would take 23.5 years – both triple their long-term averages.
The affordability picture varies widely across the country. Cities like Quebec City, Edmonton, and Winnipeg report some of the lowest MPPI levels, while Vancouver, Toronto, and Victoria remained the least affordable.
In Vancouver, the MPPI for a median-priced home ($1,280,656) sat at a staggering 92.3%, meaning nearly all of a typical household’s income would go toward mortgage payments. Toronto fares slightly better, with an MPPI of 78.4%, but both cities illustrate the persistent unaffordability that defines Canada’s urban housing markets.
Condominiums present a more accessible option, with down payment saving times significantly shorter. For example, saving for a down payment on a condo would take 4.5 years in Toronto and 5.5 years in Vancouver.
Modest improvements ahead
Upcoming changes to federal housing policy, including extending 30-year amortization periods for first-time buyers, could provide some relief but may also push home prices higher, according to the report.
“There are grounds for questioning whether such a measure really contributes to affordability when a mortgage will need to be paid for an additional five years,” Dahms and Ducharme wrote.
Read more: Interest rates to remain key factor in 2025 mortgage market, says executive
Other factors, such as a slowdown in immigration and a cooling labour market, could help moderate demand in the short term. However, the economists also noted that Canada’s housing supply remains out of sync with its population growth, keeping upward pressure on prices.
The report predicted home prices will rise slightly in 2025, likely outpacing inflation. Mortgage rates are expected to decline further, though fixed rates may not fall as quickly due to US bond market influences. Rising incomes could help balance these factors, continuing the gradual improvement in affordability.
“All told, we believe home prices should rise next year, but they may only slightly outpace headline inflation,” the economists wrote. “Affordability may continue to improve, but it is unlikely to return to pre-pandemic levels anytime soon.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
