Housing Affordability Improves Slightly but Remains Near Historic Lows
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BMO Capital Markets reports that housing affordability in both Canada and the U.S. has modestly improved, driven by declining home prices and cheaper credit. However, despite these gains, affordability remains under significant strain, hovering near multi-generational lows in both countries.
In the U.S., the NAR Housing Affordability Index has ticked up to one of its highest points in three years, but it’s still close to its weakest levels since the late 1980s—worse than during the 2008 housing bubble, according to BMO. The improvement is described as more "optical" than fundamental, since the income-to-price ratio hasn’t meaningfully shifted.
In Canada, affordability has improved by nearly 10 points since 2024 due to lower prices and rate cuts, but it's still not far from the worst readings on record. Current affordability resembles levels seen in the early 1990s, largely because of far cheaper financing. BMO warns that true normalization will require further gains in income, potential further price declines, and perhaps more rate easing — especially since many Canadian mortgages only reset every five years, exposing homeowners to future rate shocks.
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