Will Canadian Housing Stay Unaffordable Until 2035?

Canada managed to avoid a mortgage crisis by cutting interest rates and allowing longer loan terms. However, the issue of affordability continues to be a challenge. Oxford Economics estimates that housing affordability may not improve until 2035. Cities such as Toronto and Vancouver will likely continue to stay out of reach for average buyers.

Mortgage rates and longer repayment periods might make housing a bit more affordable in early 2025, but the relief won’t last. With increased borrowing power pushing home prices higher, any gains will be short-lived. By 2026, as mortgage rates start climbing again, affordability is expected to take another hit.

The report points out that slower population growth is helping to reduce price increases. However, it is expected to take another ten years to make homes more affordable nationwide.

Bank of Canada’s Rate Cuts May Offer Limited Relief   

The Bank of Canada (BoC) has made significant cuts to interest rates to respond to economic issues. In October 2024, they cut rates by 50 basis points, with another cut scheduled for December. More cuts are expected in the first half of 2025, which could lower the overnight rate to 2.25% by June.

Even with these rate cuts, fixed-rate mortgages—tied to government bond yields—remain much lower than variable rates. According to Oxford Economics, further cuts are unlikely to make a big difference in affordability because they won’t significantly boost borrowing capacity.

Fixed-rate mortgages, currently at an average of 5.4%, are expected to rise by 2026 due to tighter monetary policies and increasing bond yields. While these changes may reflect economic growth, they further limit the chances of meaningful affordability improvements.

Source: Better Dwelling

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