PBO finds affordability improved nationally, but some cities remain out of reach
Canada’s housing market has seen a sharp improvement in affordability over the past two years, but the Parliamentary Budget Officer’s latest report reveals a widening gulf between cities, leaving many households still financially stretched.
The PBO’s October 2025 update found that the national gap between average house prices and what a typical household can afford shrank from 80% in September 2023 to 34% in August 2025.
“This shift is largely driven by slower house price growth and falling interest rates. But the picture is far from uniform,” Jason Jacques, interim PBO, said.
“While some cities are seeing improvements in affordability, others are becoming increasingly out of reach for the average household.”
Interest rates have played a decisive role. The Bank of Canada’s policy rate, which peaked at 5.0% in mid-2023, dropped to 2.75% by March 2025, easing mortgage costs.
At the same time, average five-year fixed mortgage rates fell from 6.5% in late 2023 to 5.1% by August 2025. These shifts, combined with recovering household incomes, have helped restore some balance to the market.
Toronto and Hamilton see biggest gains, but challenges remain
The most significant improvements were recorded in Toronto and Hamilton, where the affordability gap narrowed substantially since early 2022. However, both cities’ average home prices remain well above what a typical household can afford.
“Even with these gains, Toronto and Hamilton are still far from affordable for most buyers,” Jacques said.
Halifax now has the widest affordability gap at 74%, while Edmonton’s is the smallest at just 4%. Calgary, Montreal, and Québec saw affordability deteriorate, but mortgage debt service ratios in these cities remain lower than in the country’s most expensive markets.
Canadian home prices are set for a brief dip before stabilizing and recovering modestly, according to the latest Canada Housing Quarterly Chartbook from Oxford Economicshttps://t.co/wmEz19RlnN
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 2, 2025
Financial vulnerability lingers in key markets
The PBO’s analysis of mortgage debt service ratios—a key measure of household financial vulnerability—showed improvement in Toronto, Vancouver, and Victoria. Yet, these cities remain the most financially exposed, with average households spending a large share of income on mortgage payments.
“Households in Toronto, Vancouver and Victoria are still stretching their finances to buy a home,” Jacques said.
The report aligns with recent Canada Mortgage and Housing Corporation (CMHC) analysis, which found that returning to early-2000s affordability levels is unlikely in many regions. Instead, the focus has shifted to restoring conditions seen in 2019.
Meanwhile, many first-time homebuyers are still staying on the sidelines, choosing to wait rather than jump into the market.
“Consumer confidence is lower because I think there’s still a little bit of hesitation around the question of whether things could change. Could things get worse? So give that they don’t have to make that massive decision right now, a lot of them are holding off. And in the meantime, they’re just building up bigger savings for their downpayment,” Royal LePage’s Anne-Elise Cugliari Allegritti, vice president of research and communications, told Canadian Mortgage Professional.
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