As rising interest rates weigh on housing affordability, a new report suggests some relief may be on the horizon.
The report by Desjardins on Canada's residential real estate outlook said Thursday housing affordability is set to improve in 2023, though to varying degrees across the country.
Provinces that experienced the largest gains in housing prices during the pandemic will see the sharpest corrections post-pandemic, including the Maritime provinces and areas surrounding Toronto, Vancouver and Montreal, the report said.
However, these regions aren't necessarily the ones that will see the greatest improvements in affordability, said Randall Bartlett, Desjardins' senior director of Canadian economics.
"In cities that saw the greatest erosion of affordability ... we think it's unlikely that they'll get back to those pre-pandemic levels over the next couple of years," Bartlett said.
According to the report, Edmonton, Calgary and Winnipeg will see the largest improvements in affordability.
And while cities like Edmonton and Calgary will return to pre-pandemic affordability levels by late 2024, Ontario won't come close.
According to the Desjardins Affordability Index, affordability in Ontario will return to the same level it was at in early 2021.
The Bank of Canada's interest rate hikes have taken a toll on the housing market, slowing the pace of home sales and sending prices tumbling.
Since March, the central bank has raised its key interest rate from 0.25 to 3.25 per cent, leading to higher borrowing costs for Canadians.
According to the Canadian Real Estate Association, the average price of a home sold in August was $637,673, down from $816,720 in February.
However, recent reports from the parliamentary budget officer and RBC show cheaper homes have not necessarily made it more affordable to buy a home.
The PBO's house price assessment published last month said the cost of the average house is 67 per cent higher than what the average household can afford and an RBC report said the median household would need to spend 60 per cent of its income on ownership costs.
With interest rates set to rise even higher, Bartlett said housing affordability will continue to deteriorate for another three to six months. Once interest rates stabilize, however, affordability will improve, he said.
The report said greater affordability will lead to a housing market rebound starting in 2024.
Desjardins is also forecasting the Canadian economy will enter a recession early next year. The report warned governments will need to "mitigate the impact of the economic slowdown on homebuilding activity."
"Efforts to boost supply must be maintained to accommodate Canada's fast-growing population without generating new froth," the report said.