Why even falling prices won't make housing affordable anytime soon

Canada's red-hot housing market is finally showing signs that it may be cooling. Sales volumes and listings have fallen as interest rates have started to rise. But even a dramatic drop in prices won't put home ownership back into reach for many of those priced out of the market.

"It's a drop in the bucket," said house hunter Gillian Newing. She's been trying to buy a home for five years. She works in advertising in downtown Toronto, and has spent years saving and watching the real estate market.

"I make over six figures a year," she said. "But as a single person, I don't stand a chance of getting my foot in the door."

She was trying to buy a starter home or a condo, but found the prices were always just out of reach. After prices shot up during the pandemic, she's worried she'll never get in.

"I did everything they told me I ought to do in life," said the 36-year-old. 

"I went to school, I got my degree, I paid off those debts right out of school. I banked money from the get-go and still, every time I go to look I'm probably $50,000 to $100,000 behind what I need to put up front to buy a house."

The housing market has been on an absolute tear, especially in cities like Vancouver and Toronto. People have been writing warnings about Canada's too-hot real estate for decades.

Even by those standards, the sharp increase in prices since the onset of the pandemic was utterly astounding.

The home price index compiled by National Bank shows the national average soared 31.2 per cent in the two years since COVID-19 crashed into the world. Economist Daren King says, over the pandemic, demand has skyrocketed and supply has fallen leading to some record-setting statistics.

"Vertiginous price increases have been recorded in many cities included in the index over the past two years, including a 65 per cent increase in Halifax, 55.4 per cent in Hamilton and 39.8 per cent in Ottawa-Gatineau," he wrote in a report.

But in April, when the Bank of Canada hiked its key overnight lending rate by 0.5 per cent, the major banks quickly followed suit — increasing the amount they charge to borrowers.

And suddenly, the housing market isn't quite as absurdly hot as it was even just a month ago.

"January, February was kind of peak insanity," said Vancouver real estate agent Steve Saretsky. 

"It kind of feels like someone turned the lights out."