Canada’s Home Supply: Why More Houses Matter for Mortgages
Image courtesy of Houzz
The latest housing starts figures from the Canada Mortgage and Housing Corporation (CMHC) reveal a crucial trend for buyers, sellers, and anyone thinking about a mortgage: housing supply in Canada is rising, yet still trails far behind the level needed for genuine affordability. This shortfall is having a direct—and growing—impact on how mortgages are priced, approved, and structured in today’s market.
The Supply Challenge
This July, Canadian home building picked up steam, with activity running 4% faster than in June and—if pace held for a year—close to 294,000 new homes would hit the market. However, to restore pre-pandemic affordability, CMHC says Canada needs to build between 430,000 and 480,000 homes annually—a rate that’s almost double the current pace.
Recent data shows wide regional differences. P.E.I. and Montreal have seen major increases in housing starts, while Toronto saw a dramatic 69% drop compared to last year. Most new building is in multi-unit projects like condos and apartments, not single-family homes.
What Less Supply Means for Mortgages
When fewer homes are built, buyers face more competition, driving up property prices. Higher prices mean many borrowers need bigger mortgages, which can push monthly payments up and make qualifying more difficult, especially with tougher stress test rules. Lenders may also be more conservative with approvals if they expect values to keep climbing—and could offer less flexible terms, mainly in the hottest markets.
For example, suppose a young couple is searching for a starter home in Toronto, where new builds are sparse and prices remain elevated. They may find themselves needing a larger down payment, incurring higher debt-to-income ratios, and having to settle for a variable-rate mortgage with more restrictions—all dictated by the tight supply.
Looking Ahead
CMHC projects housing activity may slow later this year due to higher building costs and economic uncertainty. Until construction catches up with demand, mortgage borrowers will likely face continued pressure: higher home values, stricter lending standards, and more complex approval processes.
Want personal advice on mortgage strategies when supply is tight? Ask Mr. Mortgage (Kechanth Kannan) how to find opportunity in a challenging market and get pre-approved with confidence—even as construction lags.
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