Canada’s housing market has experienced one of the most dramatic corrections in recent history, with home prices dropping by approximately 20 per cent nationally from their peak in 2022. Despite this significant decline, many Canadians, especially younger adults, feel that the drop is not enough to make homeownership feasible. The issue of affordability remains a major challenge, as even after the correction, housing prices are still far out of reach for many.
A new analysis by Bloomberg highlights that the housing market's correction has revealed a deeper underlying issue: the disconnect between home prices and household incomes. According to the analysis, even a substantial drop in prices has not restored affordability. For many potential buyers, the market is still as inaccessible as it was before the downturn began. The pandemic-driven housing boom is cited as a key factor contributing to this situation.
National Price Declines
Benchmark home prices have fallen by about 20 per cent across Canada since 2022, with some regions experiencing declines of over 30 per cent. However, despite these drops, a poll conducted by Nanos Research for Bloomberg found that 55 per cent of Canadians believe prices need to fall further. Among those aged 18 to 34, this number rises to 69 per cent. Surprisingly, even current homeowners largely support further price declines. Approximately two-thirds of homeowners surveyed said falling home prices were either positive or somewhat positive for the housing market, which is an unexpected sentiment for some.
Why the Correction?
Economists suggest that the correction is simply a return to normalcy for the housing market. The drop is erasing the extraordinary gains made during the pandemic rather than creating truly affordable housing. Robert Hogue, assistant chief economist at RBC, explains that while the drop may seem large on paper, it follows an even greater surge in prices between 2020 and 2022. In many areas, home values have returned to levels seen before the pandemic. However, experts point out that affordability was already a national crisis before the pandemic.
Mike Moffatt, founder of the University of Ottawa’s Missing Middle Initiative, argues that the correction highlights how disconnected housing prices have become from household incomes. According to Moffatt, even a 15 to 20 per cent drop in prices may still leave many middle-class families unable to afford a home. He notes that the current market reflects how severely affordability deteriorated over the past decade. While politicians often view falling prices as a sign that the crisis is easing, many prospective buyers find that ownership remains mathematically impossible without substantial family wealth or unusually high incomes.
Major Cities Face Greater Challenges
The affordability crisis is particularly severe in Canada’s largest cities. Data from RBC cited in the report shows that households in Vancouver still need to spend about 88 per cent of their income on housing costs, while Toronto households require around 63 per cent. These figures remain among the highest in North America, even after years of falling prices. In practical terms, many younger Canadians continue to face the same barriers they encountered before the correction: high down-payment requirements, elevated mortgage costs, and incomes that have not kept pace with rising housing values.
High Prices Affecting Markets
The current situation has created an unusual housing market where prices are falling, but buyers remain hesitant. Toronto realtor Alexis D’Souza told Bloomberg that first-time buyers are increasingly asking whether prices could drop further before making a purchase. Some Canadians who bought near the market peak have already experienced the consequences firsthand. D’Souza shared that the condominium she purchased with her partner in 2022 has declined in value since then. This uncertainty has made many prospective buyers reluctant to enter the market, even though conditions have improved compared to several years ago.
The market’s instability means that most Canadians cannot afford a home, but even those who can are hesitant to risk a poor return on their investment. For now, Canada’s housing market remains stuck in an unsustainable middle ground. Prices are falling, rents are easing, and inventory is rising, yet many Canadians still cannot afford to buy homes. The result is a paradox few would have predicted during the pandemic housing frenzy: one of the largest housing corrections in decades has occurred, but for a majority of aspiring homeowners, the prospect of ownership remains just as distant as before.
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