Budget watchdog reports sharp improvement in home affordability — but not everywhere

As Parliamentarians spar over how to make housing more affordable, Ottawa's fiscal watchdog is reporting significant progress in closing that affordability gap nationally — but the picture looks very different across the country.

Interim Parliamentary Budget Officer Jason Jacques put out an updated housing report Thursday. The report gauges affordability based on the gap between average home prices and what the typical household can afford.

That gap narrowed from 80 per cent in September 2023 to 34 per cent in August, the report said.

The PBO said cheaper borrowing costs, stronger wages and lower home prices are making it easier for Canadians to afford a home and pay their mortgage.

Home prices peaked in 2022 during the pandemic recovery era but subsequently cooled in many markets after the Bank of Canada rapidly increased its benchmark interest rate to above five per cent.

Today, the policy rate stands at 2.5 per cent following a series of cuts, helping to bring down mortgage costs. Home prices, meanwhile, have not returned to earlier highs.

Canada's most expensive markets broadly saw the biggest gains in affordability over the past three years, the PBO said.

The most significant improvements were seen in Toronto and Hamilton, but the PBO noted home prices in those markets are still well above affordable levels.

At 74 per cent, the affordability gap is widest in Halifax, while Edmonton's four per cent gap is the smallest of any major metropolitan area included in the analysis.

Calgary, Montreal and Québec saw the most deterioration in affordability, but the PBO said the cost of carrying a mortgage in those cities is still relatively low.

The report also gauged households' financial stability based on mortgage debt service ratios — the share of household income that goes toward paying off a home loan.

The first half of 2025 has seen "significant progress" in restoring housing affordability to 2019 levels based on mortgage debt service ratios, the PBO said.

While those ratios have improved in Toronto, Vancouver and Victoria, the PBO warned households in those still-expensive markets are more financially vulnerable than those elsewhere in Canada.

Picture Courtesy: THE CANADIAN PRESS/Darryl Dyck