Canada's Housing Market Faces Complex Challenges Amid Improving Affordability

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Despite improvements in housing affordability in Canada, uncertainty continues to hinder homeownership, as discussed at a recent housing summit.

The current landscape of Canada’s housing market is marked by improved affordability, a diminishing housing supply, and increasing public concern over homeownership, according to insights shared at a recent summit organized by the Residential Construction Council of Ontario. Industry experts addressed the audience, noting that while several key indicators are showing positive trends, persistent economic uncertainty is continuing to affect both consumers and developers, creating a challenging environment for a robust recovery in housing activity.
Jason Mercer, the chief market analyst for the Toronto Regional Real Estate Board, pointed out that the resale market in the Greater Toronto Area (GTA) now reflects many characteristics typically seen during recovery phases. With lower borrowing costs and a reduction in home prices, the affordability of housing has significantly improved compared to the peak of the Bank of Canada’s interest-rate tightening cycle. "Affordability is no longer the major obstacle it was during the peak of the interest-rate tightening cycle," Mercer stated.
He elaborated that the income required to purchase a $1-million home in the GTA has decreased substantially, and the costs associated with mortgage qualification have also lessened. Despite these favorable developments, home sales are still lagging significantly behind levels that demographic trends would usually predict. Mercer highlighted that buyers are remaining cautious, as a lack of confidence has emerged as the primary barrier, overshadowing affordability. Economic uncertainties, including trade tensions with the United States and inflation concerns, are prompting potential buyers to postpone significant financial decisions.
“If affordability were the only issue impacting demand, we would already be seeing a much larger portion of that pent-up demand come back into the marketplace,” he noted, emphasizing that many potential homeowners are choosing to stay on the sidelines while awaiting greater economic stability.
Inventory levels, however, have begun to tighten after having increased sharply over the past two years. Looking forward, Mercer believes the conditions are ripe for a stronger recovery. “If we start to see more clarity, if we start to see consumer confidence pick up, the preconditions are there to see homeownership transactions pick up and potentially pick up in a hurry as we move through 2027,” he said, although he acknowledged that the future remains uncertain.
In contrast to the resale market, Daniel Foch from Valery Real Estate Inc. reported that the pre-construction sector is witnessing signs of renewed activity, even as the future pipeline for housing supply continues to dwindle. He described a Canadian housing market increasingly split between regions that maintain affordability and major urban centers like Toronto and Vancouver, where homeownership remains unattainable for many younger families. “The markets that continue to grow and continue to attract new residents are the ones that remain affordable,” Foch explained.
He noted a growing trend where Canadians are opting to rent not out of necessity but as a strategic financial decision, often perceiving greater economic opportunities elsewhere. “There are many people who are renters not by necessity but by choice,” Foch remarked, indicating that high-income renters are channeling the financial difference between rental costs and ownership expenses into investments rather than stretching to purchase homes.
Foch also cautioned that the challenges of affordability and high financing costs are discouraging new construction, particularly in the rental sector. He pointed out that housing starts have decelerated, and fewer projects are advancing as developers navigate a more challenging economic environment. This slowdown could pose significant issues in the coming years. “As prices have corrected, we’ve stopped seeing supply getting added to the market in a way that would trend us toward excess supply,” he said, warning that the decrease in new project launches could lead to tightened supply as long-term housing demand is anticipated to rebound.
While Mercer and Foch focused on the market dynamics, David Coletto, the founder and CEO of Abacus Data, provided insights into public sentiment regarding housing. His research indicates that housing remains a critical concern for Canadians, especially among younger generations who fear they may never attain the security and stability that their parents experienced. “We’ve moved from asking, ‘Will there be enough?’ to asking, ‘Will we be OK?’” Coletto noted, highlighting that approximately three in ten Canadians consider housing affordability and accessibility among the country’s most pressing issues.
Coletto pointed out that this uncertainty is fostering a growing “precarity mindset,” where Canadians increasingly view instability as a lasting aspect of modern life rather than a temporary challenge. Data shared at the summit indicated that many Canadians are postponing significant life decisions, including relocating, changing careers, starting families, and planning for retirement due to financial uncertainties.

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