Housing affordability in Canada improved last year, according to one economist, who expects the trend to continue into this year.
National Bank’s latest Housing Affordability Monitor, released Thursday, noted affordability conditions increased in the fourth quarter of last year, marking the fourth consecutive quarter of improvement. The report said rising home prices were offset by higher incomes and lower interest rates. National Bank Economist Kyle Dahms, the report’s author, said in an interview with BNNBloomberg.ca Thursday, the figures are “definitely a good sign.”
“At the same time, you have your mortgage payment as a percentage of income reaching its lowest level in the nearly three years,” he said.
“So certainly, things are improving on the affordability front, we’re not necessarily saying that it’s become way more affordable. Your mortgage payment as a percentage of income for the national aggregate is still above the 50 per cent mark.”
Dahms said he expects affordability to continue to get better in 2025, but that it will “take some time” to fix imbalances in Canada’s housing market.
On a seasonally adjusted basis, the report said home prices rose 1.25 per cent in the fourth quarter of last year compared to the previous quarter, while benchmark mortgage rates declined by 15 basis points. During that time median household incomes rose 1.1 per cent.
Since the last quarter of 2023, Dahms said mortgage interest rates have declined by 75 basis points. He added this trend is expected to continue.
“In terms of future outlook for financing costs, we do expect to get a bit more relief, especially with back-to-back rate cuts in the first quarter of 2025 by the Bank of Canada,” Dahms said.
However, there was a bit of a decline in the labour market last year, he said, highlighting an increase in the unemployment rate that has started to moderate.
As the Canadian economy faces uncertainty regarding tariffs, Canada’s real estate market appears to be slowing. On Monday, figures from the Canadian Real Estate Association (CREA) said home sales in February fell to the closet level in more than a year.
February home sales were down 10.4 per cent compared with the same month a year earlier.
“Resale market activities (are) showing some signs of a pullback. At the very least, there does appear to be some bleed through of uncertainty surrounding not only the tariff situation, but overall economic uncertainty surrounding that,” Dahms said.
“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 noted that if trade uncertainty translates into slower growth this year, the unemployment rate could edge higher.
“In that scenario, we could see the unemployment rate rise a bit, and certainly that wouldn’t be necessarily conducive to stronger home prices,” Dahms said.
“Were kind of neutral in terms of our stance on where we see home prices for this year, we’re not expecting strong price growth. Assuming that things don’t deteriorate on the economic front, we should not see necessarily price declines.”
