With rising interest rates affecting affordability across the country, and many homebuyers sitting on the sidelines, a new report suggests relief is around the corner. A new report released by Desjardins said housing affordability is set to improve in 2023.

Although affordability should improve in all provinces, the degree of improvement will vary. The provinces that experienced the most significant gains in house prices during the pandemic will likely see the sharpest corrections post-pandemic. These include the areas surrounding Toronto, Vancouver, Montreal, and the Maritime Provinces.

However, these regions will not necessarily see the greatest improvement in affordability. Regarding the report, Randall Bartlett, Desjardins' senior director of Canadian economics, said the regions that were hardest hit in terms of affordability stand to benefit the most.

"In cities that saw the greatest erosion of affordability...we think it's unlikely that they'll get back to those pre-pandemic levels over the next couple of years," Bartlett said.

According to the report, Winnipeg, Edmonton, and Calgary are set to see the most significant improvements in affordability. While it is expected that cities like Calgary and Edmonton will return to pre-pandemic affordability levels by late 2024, Ontario will not come close.

According to the report, Ontario real estate is expected to return to the same level it was in early 2021. Since March this year, The Bank of Canada has raised its rates five times from 02.5% to 3.25% making borrowing money more expensive for Canadians.

These rising rates have had a clear effect on the real estate market. Prices have come down considerably, and home prices have slowed down.

Recent data shows that the average home price in September was $637, 673 which is down from the average price in February of $816, 720. These lower home prices have been offsite by the rising interest rates, though affordability remains out of reach for many Canadians.

A recent report from the parliamentary budget officer showed that the average home is 67% more than the average household can afford. Meanwhile, a report from The Royal Bank of Canada indicated that the median household would need to spend 60% of its household income on home ownership costs.

The report from Desjardins predicts that rates will continue to rise higher, and thus affordability could deteriorate for another three to six months. Once interest rates stabilize, affordability should start to improve, however. The market could then see a strong rebound in late 2023 and early 2024.