Is Canada’s housing market finally on the upswing?

RBC economists say housing activity in Canada is beginning to pick up after months of recession fears and trade-related uncertainty, but affordability remains a major issue, especially in Vancouver and Toronto.

Speaking on the July 24 episode of The 10-Minute Take hosted by RBC economist Carrie Freestone, RBC senior economist Claire Fan noted that while home resales have risen for three straight months, overall activity remains subdued and price trends vary widely by region.

Based on the latest data, Fan said Canada’s housing market is finally seeing some positive momentum.

“Home resales on a seasonally adjusted basis have been increasing for three straight months from April to June,” she said. “The context, however, is significant contractions earlier this year as potential buyers retreated to the sidelines from heightened economic uncertainty and recession fears that were sparked by the trade shock. The improvement in the summer only retraced part of those earlier declines.”

However, housing activity remains below levels seen earlier in the year and is down about 2% nationally compared to June 2024. The recovery has been especially slow in southern Ontario, where affordability issues and manufacturing job losses are holding sales near cyclical lows.

Inventory, though, has been increasing.

“New listings on the market have seen a steady increase over the last year despite a small decline in June,” Fan said. “And that leaves the sales-to-new-listings ratio in June at about 0.5.”

Sales-to-new-listings ratio is a measure that gauges supply/demand conditions in the market. A sales-to-new-listings ratio between 0.4 and 0.6, as seen now, points to a balanced housing market with equal leverage for buyers and sellers.

“That reading, however, does mask what are pretty significant regional differences,” Fan said. “So the sales listing ratio for both B.C. and Ontario, for example, remains at around or below 0.4. That suggests a buyer’s market. For all other provinces, on the other hand, it has been running above 0.6 and suggests sellers are in favour.”

She said the low readings in Ontario and B.C. are also not surprising given still abundant supply.”

In Ontario, it takes about five months right now to clear existing inventories if sales remain at today’s levels. And in B.C., it takes about seven months. So both of those numbers are about the longest over the last decade outside of pandemic shutdowns.”

She said the recent supply boom in Ontario and B.C. has led to price declines this year.

“House prices have stabilized somewhat in Ontario in the summer, but are still actually falling in B.C. on an annual basis. Prices were still down 7% and 2% respectively in Ontario and B.C. in June. For other parts of Canada, including Saskatchewan, Quebec and most of the Atlantic provinces, we’re seeing prices continuing to trend higher overall.”

She said this regional diversity highlights how Canada does not have a single housing market, but many different ones with their own dynamics.

“The National Composite Home Price Index was still falling in the summer by 0.2% in each of May and June. But that’s just a fraction of the average, about a percentage point drop we saw in the three months before that. Essentially, the pace of declines in home prices has been slowing.”

Fan had some good news regarding affordability.

“Owning a home in Canada is the most affordable it has been in three years,” She said.

Affordability is measured as the percentage of income a household would need to cover ownership costs for a newly purchased home. The higher the percentage, the less affordable the home is. While it doesn’t reflect actual payments, the measure estimates how much of a household’s income would go toward expenses like mortgage payments and property taxes.

“In Q1, that ratio dropped to 55% from 61% a year ago,” she said. “That suggests that it would take an average household about 6% less of their income to service at home. That’s a reflection of one, lower interest rates over the past years, and two, a moderate easing in home prices, and three, sustained household income gains.”

The market remains far from pre-pandemic affordability levels. Fan said the steady improvements in affordability over the past five quarters have reversed only roughly a third of the loss of affordability nationwide since 2020.

“The same affordability measure back in the fourth quarter of 2019 was standing at about 42%, compared to the 55% in Q1 this year. Buying conditions also remained extremely challenging in a lot of major markets, particularly in Vancouver and Toronto, which recorded the largest improvements in Q1, but are still Canada’s least affordable markets.”

This picture varies across different housing types, Fan said.

“That’s where it gets interesting. So improvements in affordability were observed across regions and housing segments, but probably most noticeable in condos. In some parts of the country, including Edmonton, Saskatoon, Regina, Winnipeg and even Toronto, condo affordability is now effectively back to where it was before the pandemic. In comparison, affordability for single detached homes remains worse off compared to before the pandemic.”

Affordability varies widely across Canada, Fan said. Vancouver remains the country’s least affordable market, with homeownership costs taking up 93% of median income in Q1. Toronto follows at 68%, while Ottawa and Montreal are near historic lows for affordability. Calgary has improved but remains worse than average, whereas Edmonton offers relatively better conditions. Regina is the most affordable market in Canada and the only one where affordability is better than its long-term average. In Saskatoon and Winnipeg, affordability is roughly in line with historical norms. Among Atlantic provinces, conditions remain tight, though St. John’s stands out as the most affordable in the region.

According to Fan, the near-term outlook for the Canadian housing market largely depends on how tariff and trade dynamics evolve, as these have played a key role in shaping economic uncertainty and buyer confidence.

“Broad de-escalation since April has already lifted some of the uncertainty that hindered activity earlier this year,” she said. “Going forward, we expect confidence will continue to rebuild gradually and for housing demand to continue to pick up. But more weakening in the labour market, as we’re still expecting the unemployment rate to rise, could temper the pace of the recovery in the near term. In Ontario, B.C., we think buyers will likely remain in the driver’s seat for a while longer as growth in housing supply still outpaces demand.

“This could also lead to further price depreciation in these markets, especially in the condo segment, where weakness is especially pronounced. Other markets, where conditions are tighter and price trends more positive, could see firmer appreciation.”

Fan said she expects housing affordability to continue improving in the near term, though further gains could be harder to achieve once interest rates level off.

“And speaking of interest rates, our latest forecast continues to expect the Bank of Canada is done with easing at this point,” she said. “Inflation is still running hotter than the central bank’s target, and there are more and more signs that additional fiscal spending this year and next will help support growth in the economy. Recent signs of housing activities recovering and heating up in the summer, if anything, could further reduce the odds of additional rate cuts from the Bank of Canada.”

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