Rishel Fortugno (Tomlinson), BA(Econ), MBI

Highlights: Canadian housing affordability posted an eight consecutive improvement in Q425. This was the longest streak of improving affordability ever recorded in the country. The mortgage payment on a representative home as a percentage of income (MPPI) fell 0.4 percentage points. Seasonally adjusted home prices rose 0.4% in Q425 from Q325; the benchmark mortgage rate (5-year term) increased 4 basis points, while median household income rose 0.8%. Affordability improved in 6 of the ten markets in Q4. On a sliding scale of markets from best progression to least: Vancouver, Calgary, Toronto, Edmonton, Victoria and Hamilton. On the flip side, Quebec City and Ottawa/Gatineau deteriorated in the fourth quarter, while Montreal and Winnipeg remained unchanged. Countrywide, affordability enhanced by 0.6 pp in the condo portion and 0.4 pp in the non-condo segment. Housing affordability improved again in the final quarter of 2025, marking an eighth consecutive quarterly gain, the longest streak on record. The mortgage payment as a percentage of income fell to 51.6%, its lowest level in almost four years. Even with the recent improvement, affordability remains well above the long-term average of 40.5% since 2000. The latest progress in affordability came despite a modest increase in national home prices, the first in three quarters. The 5-year mortgage rate reversed the prior quarters 4-basis-point increase, declining by the same amount in Q4. This represented the seventh improvement in financing costs in the past eight quarters, offering a slight boost to affordability. With this latest movement, borrowers are financing at rates approximately 22 basis points lower than a year earlier. Income gains, however, contributed more to the improvement in the quarter than changes in interest rates. Although incomes have lagged home price growth in recent years, the gap has been narrowing, and the home-price-to-income ratio now stands at its most favourable level in five years. Affordability trends varied across regions. Vancouver and Calgary posted the largest quarterly declines in the mortgage payment as a percentage of income, helped in part by lower home prices. Toronto also enjoyed a sharp improvement despite the stabilization in home prices. In contrast, affordability worsened in Qubec City and Ottawa-Gatineau, where price growth more than offset the impact of higher incomes and lower financing costs. Most of the improvements in the last year have occurred in the markets that were the most stretched, rather than in areas with relatively more affordable housing. This pattern may continue in 2026, as ongoing softness in the Toronto and Vancouver resale markets does not suggest an imminent rebound in prices especially with the ongoing slowdown in population growth. Looking ahead, assuming tepid home price increase changes over the next year at the national level, income growth is expected to remain the primary driver of further improvements in affordability, as interest rates are unlikely to provide much additional support. The Bank of Canada has indicated it is comfortable with its current stance on monetary policy and persistent government deficits worldwide could exert upward pressure on longer-term yields. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/housing-affordability.pdf

CANADA HOUSING MARKET: NATIONAL HOUSING CONDITIONS CONTINUE TO COOL National unit sales significantly fell from December to January. This weakening in sales combined with a sharp rise in new listings contributed to lower the sales-to-new listings ratio to near the lower bound of the estimated range for balanced conditions. However, unusually inclement weather in Ontario centres contributed to amplify the slowdown in national sales in January. National sales (in units) posted a -5.8% (sa) drop from December to January. They weakened in each of the last 3 months, posting a cumulative -10.2% decline (with sa figures) since October 2025. In January, they were 16.2% below their level in November 2024, the period when trade tensions started to emerge as the incoming U.S. administration announced its intention to increase tariffs on imports from key economic partners. Compared to the same month in 2025, national sales were 16.2% (nsa) lower in January. Following 4 months of monthly declines, new listings rose sharply in January (7.3% m/m, sa) but fell 6.2% (nsa) from the same month in 2025. With this significant decline in sales and the sharp rise in new listings from December to January, the sales-to-new listings ratio fell from 51.3% (sa) in December to 45% in January, a 6.3 percentage points (pps) drop. This indicator of housing market conditions now stands very close to our 44.6% estimate for the lower bound of the balanced conditions range. This indicator declined by 4.1 pps (from sa figures) since January of 2025. https://www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.housing.housing-news-flash.february-18--2026.html