Mortgage payments have fallen to their lowest level in nearly three years
Housing affordability in Canada has seen gradual improvement over the past year, but concerns about the broader real estate market persist as economic uncertainties continue to unfold.
While lower mortgage rates and rising household incomes have provided some relief to homebuyers, according to BNN Bloomberg, declining sales activity and shifts in employment trends could influence housing conditions in the months ahead.
National Bank’s Housing Affordability Monitor found that affordability improved for the fourth consecutive quarter. The report attributed this to a combination of declining borrowing costs and income growth, which helped offset rising home prices.
National Bank economist Kyle Dahms told BNN Bloomberg that mortgage payments as a percentage of income have fallen to their lowest level in nearly three years. However, he noted that affordability remains constrained, as this percentage remains above 50% at the national level.
“So certainly, things are improving on the affordability front, we’re not necessarily saying that it’s become way more affordable," said Dahms.
The report indicated that in the fourth quarter of 2024, home prices increased by 1.25% on a seasonally adjusted basis from the previous quarter. Over the same period, median household incomes rose by 1.1%, while benchmark mortgage rates declined by 15 basis points.
Dahms pointed out that since late 2023, mortgage rates have dropped by 75 basis points, with further reductions expected. He anticipates additional relief in borrowing costs, particularly if the Bank of Canada moves forward with back-to-back interest rate cuts in early 2025.
Despite affordability gains, signs of a slowdown in Canada’s real estate market have emerged.
BNN Bloomberg reported that home sales in February reached their lowest level in more than a year, with data from the Canadian Real Estate Association showing a 10.4% decline compared to February 2024.
Dahms suggested that economic concerns, including trade uncertainty, may be affecting homebuyer activity.
“So that appears to be playing into those housing figures - we’ve seen active listings to sales ratios start to creep up over the last few months,” he added.
Meanwhile, the labor market remains in flux. Dahms acknowledged that unemployment rose last year, though recent data suggests some stabilization.
If economic conditions weaken further, higher unemployment could affect housing demand and prices.
While National Bank does not expect significant price increases in 2025, Dahms told BNN Bloomberg that major declines are unlikely unless the economic outlook worsens.
With affordability conditions evolving and market dynamics shifting, what do you think is next for Canada’s housing sector? Share your thoughts in the comments.
