Housing affordability is finally showing signs of life in both Canada and the United States. A new report from BMO Capital Markets shows that falling home prices and lower borrowing costs have pushed affordability to a multi-year high in both countries. However, the bank warns that the improvement is modest and affordability remains near multi-generational lows.
In other words: conditions are better, but still far from normal.
Canada and the US Are Seeing Improvement, But From Extremely Low Levels
BMO compared both countries using similar affordability measures that track how much of a median household’s income is needed to carry the cost of a typical home purchase.
- United States: The National Association of Realtors (NAR) Housing Affordability Index defines 100 as affordable, with higher values meaning better affordability.
- Canada: The Bank of Canada Housing Affordability Index measures the percentage of income needed to carry a home. A reading of 35 percent means a household spends 35 percent of its income on housing.
To make the data easier to compare, BMO normalized the indexes. Canada’s index was flipped so a rising line represents improving affordability in both countries. A blue horizontal line marks the 40-year median in each market, revealing just how far conditions remain from historical levels.
“Affordability is improving, but from levels that are still extremely strained in both countries,” said Douglas Porter, BMO chief economist.
US Housing Affordability Hits a 3-Year High, But Still Near 1980s Lows
The US housing market has seen modest relief. The NAR Housing Affordability Index has climbed to one of its highest readings in the past three years. Even so, affordability remains extremely weak.
Key points:
- Affordability is still near the lowest levels seen since the late 1980s.
- Conditions are worse than at the peak of the 2008 housing bubble.
- Income growth has not kept pace with prices, limiting real improvement.
“US housing affordability inched higher in the latest month to one of its better levels of the past three years, but it’s still quite weak,” said Porter. “Even with the uptick, it’s still close to the lowest ebb since the late 1980s.”
Canadian Affordability Has Improved Sharply, But Is Still Historically Bad
Canada has also experienced a notable improvement driven by:
- Lower benchmark home prices
- Aggressive Bank of Canada rate cuts
- Moderating household debt servicing costs
BMO notes that affordability has improved by nearly 10 points since 2024. Yet conditions remain close to the worst levels ever recorded. Current readings are only slightly better than those seen during the early 1990s housing correction, and even that is mostly due to cheaper financing.
One major difference between countries:
- US borrowers lock in mortgage rates for 30 years.
- Most Canadians face renewal every five years, exposing them to rate shocks that can wipe out affordability gains.
“The combination of lower home prices and the big rate cuts has helped, but things aren’t normal yet,” said Porter. “It will likely require some time for incomes to rise, prices to drift lower, and probably slightly lower rates to restore affordability.”
A Post-Boom Phase With Long Recovery Ahead
Both Canada and the US are now deep into a post-pandemic housing comedown. Prices have cooled, borrowing costs have eased, and incomes are rising slowly. But affordability is still hovering near historic lows.
Even after one of the steepest rate-cutting cycles in recent history, the improvement remains modest. BMO warns that structural challenges such as weak income growth, high land costs, supply constraints, and elevated debt levels will keep affordability strained for years.
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