Canadian Home Prices Fall, But Affordability Remains Below Historic Norms
Despite a significant drop in benchmark home prices across Canada, housing affordability has not returned to long-run averages. Economists suggest further price declines or income growth are needed for normalization, as interest rate relief appears unlikely.
Canadian home prices have experienced a notable correction, yet the country’s housing market remains less affordable than historical standards would suggest. According to recent data, the benchmark home price across Canada stood at $661,800 in July. This figure represents a 21.3-per-cent decline from the peak recorded in March 2022.
When adjusted for inflation, the drop is even more pronounced. Real house prices have fallen back to levels seen in 2016, marking a decrease of nearly 30 per cent from the peak. While this shift has improved conditions from what was considered the worst period of deterioration since the 1990s, the Bank of Canada’s housing affordability index indicates that costs remain above long-run averages.
Regional markets reflect this downward trend. In August, regional real estate boards reported annual declines for composite benchmark prices in major metropolitan areas. Toronto saw a 4.5 per cent drop, while Vancouver experienced a 5.6 per cent decline year-over-year. These corrections have eroded equity for many homeowners, but they have not been sufficient to restore affordability to historic norms.
The path forward depends heavily on economic factors beyond just property values. Doug Porter, chief economist at Bank of Montreal, noted that interest rate relief does not seem likely in the near term. He cited global bond yield increases and mounting inflation risks as key obstacles. With the Bank of Canada maintaining its focus on keeping inflation within its 1 to 3 per cent target range, economists suggest that either further price declines or significant income growth will be necessary to normalize the housing market.
