While public attention has focused on Canada's housing affordability crisis, new analysis reveals a surprising trend: mortgage affordability has actually improved significantly over the past three and a half years.
The Affordability Paradox
According to mortgage expert Robert McLister, the average mortgage borrower is in a much better position today than during the real estate peak in 2022. This improvement comes despite widespread concerns about high interest rates and tight housing supply that have dominated headlines.
The evidence comes from comparing key metrics between 2022 and today. National average home prices have fallen by 18% since the market peak, while today's leading nationally advertised five-year fixed rate sits at 3.69%.
Crunching the Numbers
When factoring in a homebuyer couple each working 40 hours weekly at average wages, minimum down payment plus default insurance fees, and a 30-year amortization, the results are striking.
The share of income needed to support an average home purchase - known as the gross debt service (GDS) ratio - has dropped to 32%. This represents a substantial ten-point decline from the 42% peak recorded in 2022.
Thirty-two percent has long been the recommended standard GDS ratio in the mortgage industry, suggesting that for the average borrower, affordability has returned to traditional comfort levels.
Regional Realities and Market Pain Points
However, these national averages mask significant regional disparities and financial pain for specific buyer groups. First-time home buyers in Canada now average around 40 years old - among the highest ages globally according to a recent Bloom Holdings report.
Martin Frenette, chief executive at Strive Capital Corporation, advises that renting remains the better option in Toronto and Vancouver markets. This recommendation comes despite his company generating most revenue from insured mortgage lending to purchasers without 20% down payments.
"If I were counselling my kids between renting and buying, I'd probably suggest they rent in the GTA and GVA," Frenette states, highlighting the particular challenges in Canada's most expensive housing markets.
For recent graduates with entry-level salaries or buyers determined to purchase in Toronto or Vancouver, the mathematics shift from uncomfortable to "outright hostile," as McLister describes it.
Practical Implications and Market Response
Lenders and default insurers typically allow buyers to reach 39% GDS ratios if they qualify, though Frenette recommends sticking near the 32% rule of thumb to maintain financial breathing room.
The affordability improvement is already translating into market activity. Default insured purchase volumes increased 25% in the latest reported 12-month period according to Canada Mortgage and Housing Corporation (CMHC) data.
This suggests that when monthly payments decrease from "impossible" to merely "painful," Canadian homebuyers become willing to sign purchase agreements despite ongoing market challenges.
