Affordability Has Returned, But Canadian Capital Is Still Waiting on the Sidelines
The numbers say buyers should be moving. The income required to qualify for a million dollar home in the Greater Toronto Area has fallen sharply, mortgage costs have eased, and prices have softened from their peak. Yet transaction volumes remain well below what demographics alone would justify. For an investor, that gap between fundamentals and behaviour is the story worth watching closely.
At a recent housing summit hosted by the Residential Construction Council of Ontario, Jason Mercer, chief market analyst at the Toronto Regional Real Estate Board, made the point plainly: affordability is no longer the obstacle it was during the peak of the Bank of Canada’s tightening cycle. What is holding buyers back now is confidence, not cost. Trade tension with the United States, inflation uncertainty, and lingering doubt about the direction of interest rates have pushed a meaningful share of demand into a holding pattern.
That holding pattern matters for anyone thinking about timing. Mercer noted that inventory has begun tightening after two years of buildup, which means the conditions for a sharp snapback are quietly assembling even while headline sentiment stays cautious. He put it directly: if clarity returns and confidence follows, transactions could pick up quickly through 2027. The setup resembles a coiled spring more than a stalled market, and coiled springs are exactly where disciplined capital tends to find its best entry points.
The supply side adds another layer worth underwriting into any thesis. Daniel Foch of Valery Real Estate Inc. described a market splitting between affordable, growth-oriented regions and gateway cities like Toronto and Vancouver, where ownership remains out of reach for many younger households. That divergence is already reshaping rental demand, and not for the reasons landlords usually cite. Foch noted that a growing share of renters are choosing to rent by preference rather than necessity, redirecting the capital they would have sunk into a down payment toward businesses and equities instead. That is a sophisticated cohort of tenants, and it has implications for the quality and stability of rental income in the right buildings.
As prices have corrected, we’ve stopped seeing supply getting added to the market in a way that would trend us toward excess supply.
Foch’s warning is the part investors should not skim past. Elevated financing costs are discouraging new construction, particularly rental projects, and housing starts have slowed. That sets up a familiar cycle: today’s underbuilding becomes tomorrow’s shortage, precisely when pent-up demand is expected to re-enter the market. Data from Abacus Data reinforces why that demand is still pent up rather than gone. David Coletto’s research shows roughly three in ten Canadians still rank housing affordability among the country’s top concerns, and many are delaying life decisions, moving, family planning, retirement, until they feel more financial certainty.
For investors, the read is straightforward. Fundamentals have already improved. Sentiment has not caught up. History suggests that gap rarely persists indefinitely, and the investors who position ahead of the confidence shift, rather than after it, are usually the ones who capture the largest share of the recovery.
Source: Construct Connect Canada
