Why Housing Still Feels Unaffordable in Canada (Even After Prices Dropped)
If home prices have dropped 10%, 20%, or even 30% in some areas—and interest rates have also come down…
Why does housing still feel so unaffordable?
It’s a fair question. And one I hear all the time working with buyers across Langley and Surrey.
Here’s the truth:
👉 Affordability has very little to do with price or interest rates.
And a whole lot more to do with:
👉 What the bank is willing to lend you based on your income.
The Real Driver of Affordability: Your Income
Most buyers assume affordability is about:
Purchase price
Interest rate
But banks don’t think that way.
They look at one thing first:
👉 Your income—and how much of it can go toward housing.
This is calculated using something called your GDS (Gross Debt Service Ratio).
What Is GDS (Gross Debt Service Ratio)?
GDS is the percentage of your income that banks allow you to spend on housing.
In Canada:
39% of your gross income (with insured mortgages)
Up to 44% (TDS) if you have 20% down and minimal debt
Example:
If your household income is $100,000/year:
39% = ~$3,250/month
44% = ~$3,666/month
👉 That’s the maximum the bank wants you spending on:
Mortgage
Property taxes
Heating
Strata fees (if applicable)
From what I see working with buyers in Langley and Surrey, this is often the biggest “aha” moment.
Because it explains why affordability feels tight—regardless of market conditions.
Debt Changes Everything
That maximum only applies if you have no other debt.
If you have:
Car payments
Student loans
Credit cards
👉 Your allowable housing budget goes down.
Sometimes significantly.
The Mortgage Stress Test (The Hidden Affordability Killer)
Even if you qualify at today’s rates…
👉 You don’t actually qualify at today’s rates.
In Canada, buyers must pass the mortgage stress test.
This means:
If your rate is ~4.5%
You’re tested at 5.25% or ~6.5%+
👉 The bank qualifies you as if your payments are much higher than they actually are.
This reduces how much you can borrow—and directly impacts affordability.
Why Housing Never “Feels” Affordable
Here’s the part most people don’t realize:
👉 Even when conditions improve, affordability often feels the same.
Why?
Because buyers don’t usually lower their payments.
Instead:
👉 They upgrade what they’re buying.
Example:
Before:
You could afford a 2-bedroom condo
Now (with lower rates/prices):
You can afford a townhouse
Most buyers choose:
👉 More home for the same payment
Not:
👉 Lower payment for the same home
This Is Why the Feeling Never Changes
Even when:
Prices drop
Rates drop
👉 Your monthly payment stays near your maximum
So it always feels like:
👉 “This is still expensive”
From what I’ve seen working with clients in Surrey and Langley, this is one of the biggest psychological traps in real estate.
Income vs Home Prices (The Bigger Picture)
Another reason affordability feels off:
👉 Home prices don’t always match average incomes.
And there’s a reason for that:
Not everyone buys homes
Renters typically earn less than homeowners
Equity from previous homes plays a big role
In markets like Langley and Surrey:
👉 Prices are often more sensitive to:
Interest rates
Employment
Local economic conditions
But over time:
👉 Prices tend to reflect buyers with equity and higher incomes—not averages
Why Lower-Income Buyers Feel It More
On the lower end of the income scale:
Property taxes
Heating costs
Strata fees
👉 Take up a much larger portion of income
Which means:
👉 Affordability feels even tighter
The Real Key to Affordability
Here’s the part most people don’t talk about:
👉 You don’t have to spend what the bank approves.
If you buy below your maximum budget:
Your monthly costs drop
Your financial flexibility improves
Your stress level decreases
Even with the stress test:
👉 You technically have built-in buffer room
What I’m Seeing Right Now
From what I’m seeing working with buyers in Langley and Surrey:
Affordability has improved slightly
But expectations have increased just as fast
Most buyers are still pushing their upper limit
That’s why it still feels difficult.
Key Takeaways
Affordability is based on income—not just price
Banks cap housing costs at ~39–44% of income
Debt reduces what you can afford
The stress test limits borrowing power
Buyers often upgrade instead of lowering payments
True affordability comes from buying below your limit
Final Thought
Housing affordability isn’t just about the market.
👉 It’s about how you approach it.
Because no matter what happens with:
Prices
Interest rates
Market conditions
👉 If you’re always buying at your maximum…
It will always feel expensive.
But if you understand the system—and work within it strategically—you can create real affordability for yourself.
Written by:
Steve Karrasch PREC
Karrasch Real Properties Team
Macdonald Realty
If home prices have dropped 10%, 20%, or even 30% in some areas—and interest rates have also come down…
Why does housing still feel so unaffordable?
It’s a fair question. And one I hear all the time working with buyers across Langley and Surrey.
Here’s the truth:
👉 Affordability has very little to do with price or interest rates.
And a whole lot more to do with:
👉 What the bank is willing to lend you based on your income.
The Real Driver of Affordability: Your Income
Most buyers assume affordability is about:
Purchase price
Interest rate
But banks don’t think that way.
They look at one thing first:
👉 Your income—and how much of it can go toward housing.
This is calculated using something called your GDS (Gross Debt Service Ratio).
What Is GDS (Gross Debt Service Ratio)?
GDS is the percentage of your income that banks allow you to spend on housing.
In Canada:
39% of your gross income (with insured mortgages)
Up to 44% (TDS) if you have 20% down and minimal debt
Example:
If your household income is $100,000/year:
39% = ~$3,250/month
44% = ~$3,666/month
👉 That’s the maximum the bank wants you spending on:
Mortgage
Property taxes
Heating
Strata fees (if applicable)
From what I see working with buyers in Langley and Surrey, this is often the biggest “aha” moment.
Because it explains why affordability feels tight—regardless of market conditions.
Debt Changes Everything
That maximum only applies if you have no other debt.
If you have:
Car payments
Student loans
Credit cards
👉 Your allowable housing budget goes down.
Sometimes significantly.
The Mortgage Stress Test (The Hidden Affordability Killer)
Even if you qualify at today’s rates…
👉 You don’t actually qualify at today’s rates.
In Canada, buyers must pass the mortgage stress test.
This means:
If your rate is ~4.5%
You’re tested at 5.25% or ~6.5%+
👉 The bank qualifies you as if your payments are much higher than they actually are.
This reduces how much you can borrow—and directly impacts affordability.
Why Housing Never “Feels” Affordable
Here’s the part most people don’t realize:
👉 Even when conditions improve, affordability often feels the same.
Why?
Because buyers don’t usually lower their payments.
Instead:
👉 They upgrade what they’re buying.
Example:
Before:
You could afford a 2-bedroom condo
Now (with lower rates/prices):
You can afford a townhouse
Most buyers choose:
👉 More home for the same payment
Not:
👉 Lower payment for the same home
This Is Why the Feeling Never Changes
Even when:
Prices drop
Rates drop
👉 Your monthly payment stays near your maximum
So it always feels like:
👉 “This is still expensive”
From what I’ve seen working with clients in Surrey and Langley, this is one of the biggest psychological traps in real estate.
Income vs Home Prices (The Bigger Picture)
Another reason affordability feels off:
👉 Home prices don’t always match average incomes.
And there’s a reason for that:
Not everyone buys homes
Renters typically earn less than homeowners
Equity from previous homes plays a big role
In markets like Langley and Surrey:
👉 Prices are often more sensitive to:
Interest rates
Employment
Local economic conditions
But over time:
👉 Prices tend to reflect buyers with equity and higher incomes—not averages
Why Lower-Income Buyers Feel It More
On the lower end of the income scale:
Property taxes
Heating costs
Strata fees
👉 Take up a much larger portion of income
Which means:
👉 Affordability feels even tighter
The Real Key to Affordability
Here’s the part most people don’t talk about:
👉 You don’t have to spend what the bank approves.
If you buy below your maximum budget:
Your monthly costs drop
Your financial flexibility improves
Your stress level decreases
Even with the stress test:
👉 You technically have built-in buffer room
What I’m Seeing Right Now
From what I’m seeing working with buyers in Langley and Surrey:
Affordability has improved slightly
But expectations have increased just as fast
Most buyers are still pushing their upper limit
That’s why it still feels difficult.
Key Takeaways
Affordability is based on income—not just price
Banks cap housing costs at ~39–44% of income
Debt reduces what you can afford
The stress test limits borrowing power
Buyers often upgrade instead of lowering payments
True affordability comes from buying below your limit
Final Thought
Housing affordability isn’t just about the market.
👉 It’s about how you approach it.
Because no matter what happens with:
Prices
Interest rates
Market conditions
👉 If you’re always buying at your maximum…
It will always feel expensive.
But if you understand the system—and work within it strategically—you can create real affordability for yourself.
Written by:
Steve Karrasch PREC
Karrasch Real Properties Team
Macdonald Realty