A recent report from BMO Capital Markets highlights that Canadian US real estate affordability has improved slightly due to falling home prices and cheaper financing. (BMO Capital Markets) However, the improvement is marginal, and affordability remains near multi-generational lows. Even with interest-rate reductions, households continue to face significant challenges, demonstrating that both markets are far from returning to “normal” levels. CondoTrend readers need to understand these trends, as they directly impact investment decisions, mortgage planning, and long-term market strategy.
Affordability Trends in Canada
In Canada, affordability is measured by the share of household income needed to carry the cost of a typical home. A reading of 35% means households spend 35% of their income on housing. According to BMO, affordability has improved nearly 10 points since 2024, largely due to rate cuts and slightly lower home prices. (Better Dwelling)
Despite this improvement, Canadian housing affordability remains near record lows, comparable to the early 1990s. Many Canadians still face “rate shock” when mortgage renewals occur every five years, as opposed to fixed long-term rates in the U.S. This demonstrates that while policy measures help, structural challenges—like stagnant wage growth relative to housing costs—persist, limiting access to homeownership for many households.
U.S. Affordability: A Slight Rebound
The U.S. housing market shows a modest uptick in affordability, as measured by the NAR Housing Affordability Index. Current readings are the highest in three years but still close to historically weak levels last seen in the late 1980s. (NAR) The apparent improvement is mostly “optical,” meaning the ratio of income to home prices has not dramatically changed. This suggests that while mortgage rates have eased slightly, American households still face severe affordability constraints, and the market continues to balance between policy relief and underlying economic realities.
Factors Driving Affordability Changes
Several factors contribute to the current affordability landscape:
- Interest Rate Reductions: Both the Bank of Canada and the Federal Reserve in the U.S. have eased rates, lowering monthly mortgage payments.
- Falling Home Prices: Slight declines in home values provide temporary relief to buyers.
- Income Stagnation: Wage growth in both countries has not kept pace with rising housing costs, maintaining pressure on affordability metrics.
- Policy Differences: Canadians typically face mortgage renewal cycles every five years, unlike U.S. borrowers with longer-term fixed rates, causing periodic affordability shocks.
Investors and prospective homeowners should factor in these elements when planning purchases or evaluating long-term rental income potential in either market.
You can also check our blogs about Concord Sky Toronto: 5 Major Updates as Glazing Climbs & Massing Takes Shape and Conservatory Group Toronto Portfolio: 7-Point Power Analysis of a Billion-Dollar Sale Shaking the Market.
Market Implications for 2025
For Canadian and U.S. real estate investors, the affordability gap highlights ongoing risks and opportunities:
- In Canada, investors may see slower growth in first-time homebuyer demand, increasing competition in the rental market.
- In the U.S., urban and suburban rental properties could continue to attract strong interest due to limited affordability among buyers.
- Both markets may see policy-driven interventions to stabilize affordability, such as incentives for new construction or tax adjustments to encourage housing supply.
This landscape underscores that even in 2025, affordability remains a critical factor shaping housing investment strategies.
What Buyers and Investors Should Know
- Affordability is improving but still near historic lows in both Canada and the U.S.
- Interest rates and home prices provide some relief but are unlikely to restore “normal” conditions quickly.
- Market structural issues, including income-to-price imbalances, remain unresolved.
- Rental demand may strengthen as fewer households can afford to buy.
- Strategic investors can benefit by identifying regions with relative affordability and growth potential.
Understanding these dynamics helps investors plan better for risk, returns, and long-term portfolio growth.
