Canada’s housing market is experiencing a subtle shift in affordability, according to a recent report from RBC economist Robert Hogue. Although the recent interest rate cuts by the Bank of Canada have provided some relief, prospective homebuyers are still facing significant challenges in achieving homeownership.

Small Steps Towards Affordability

Hogue’s report, released on Tuesday, highlights that while affordability metrics across Canada have “inched” lower in the second quarter of 2024, buyers continue to confront the lasting effects of massive price increases and the steep rise in interest rates during the pandemic.

“Buyers continue to struggle to find a home they can afford in the aftermath of massive price escalation and spike in interest rates during the pandemic,” said Hogue. He noted that despite the slight improvements, affordability metrics remain near “worst-ever levels” both nationally and in major housing markets.

Interest Rate Cuts: A Path to Relief?

Since June, the Bank of Canada has reduced its overnight lending rate by 25 basis points on three consecutive occasions. While these cuts have slightly eased the mortgage qualification process for Canadians, the income required to carry an average mortgage remains high.

Nationwide, it took an income of $155,000 in the second quarter of 2024 to qualify for a mortgage on an $810,200 home, a marginal improvement from the $161,000 needed at the end of 2023. However, these figures still pose a steep challenge, especially when compared to the income required to buy a home in 2019, which was just $96,000—a 38% difference.

Outlook for Homebuyers

Despite the current hurdles, Hogue predicts further improvements in affordability in the coming months. As the Bank of Canada is expected to continue cutting rates, homebuyers may see more significant relief. Additionally, declining costs for both buyers and homeowners are expected to continue as inflation trends downward.

While the challenges remain steep—especially when the median household income in Canada is estimated at just $87,000—the prospect of falling rates may offer some hope to buyers in the near future.

Conclusion

While recent interest rate cuts have offered a glimpse of improvement, housing affordability in Canada remains a significant hurdle for many prospective buyers. As the Bank of Canada continues to cut rates, the coming months may bring more significant relief, but for now, the path to homeownership remains challenging.