Canada's Budget 2026, Interest Rates and Housing Affordability

As of December 2025, Canada's Budget 2026 pointed federal money in three directions at once: building the country, defending it, and building homes. Roughly $280 billion over five years, with $25 billion of that for housing. In the same weeks, lower interest rates finally started showing up in the mortgage numbers rather than just in the forecasts.

Moe Asgarian is a real estate broker in Toronto with RE/MAX, ranked 47th in the company worldwide, and federal budget news tends to reach his clients' monthly payments long before it reaches a construction site. So it is worth separating the two: what the budget promises over five years, and what the rate picture actually looked like at the end of 2025.

What Budget 2026 was actually trying to do

The core idea was to spend less on running the government and more on building the country. About 75% of the measures in Budget 2026 were framed as a response to large global economic shocks, which is a blunt admission of how much international tension had shaped Canadian life in the years leading up to late 2025. Around 42% of the budget went to protecting the country's sovereignty: higher defence spending, a response to tariffs, and a more resilient economy. Another 36% or so went to bringing down the cost of living.

The investment list was long and physical: ports, airports, clean energy projects, electricity grids, transport, and critical minerals. The reasoning behind it was openly stated. As of late 2025 Canada no longer treated the United States as a dependable partner and wanted to cut its dependence, with a goal of doubling non-US exports within ten years. Government purchasing was pushed toward Canadian companies, and significant money went to artificial intelligence, quantum and electric vehicle manufacturing. One structural change mattered more than any single line item: day-to-day operating costs were separated from long-term investment, which makes it easier to fund national projects without the operating budget swallowing them.

Twenty-five billion dollars for housing, and a return to 2019 building levels

The housing plan had a specific number attached to it, which is rarer than it should be. In Budget 2026 the target was to bring affordable home construction back to its 2019 pace: from roughly 280,000 units a year up to somewhere between 430,000 and 480,000 units a year. The $25 billion behind it covered existing programs, the Build Canada Homes initiative, and tax measures.

The method was as interesting as the money. In Budget 2026, modern construction methods were expected to cut build times by up to 50%, costs by about 20%, and greenhouse gas emissions by roughly 20%. And the federal government did not plan to carry the whole thing. The structure was for Ottawa to put in the first money and for builders and funds to bring the rest, so the volume of construction multiplies instead of staying capped at whatever the public purse can fund directly. Worth being clear-eyed about timing, though. As of late 2025 these were targets, not finished homes. A number announced in a budget does not put keys in anyone's hand for several years.

Mortgage arrears fell for the first time in three years

Here is the piece of good news that actually touched households. As of the second quarter of 2025, and for the first time in three years, the share of Canadian mortgages in arrears went down. Canada Mortgage and Housing Corporation put the arrears rate in that quarter at 0.22%, below 1% and down from 0.23% in the first quarter of 2025.

That is a small movement, and it is the direction that counts. Rates had been high for years, and families were visibly strained. A falling arrears rate says borrowers were catching their breath as borrowing got cheaper. One caveat belongs with it: as of 2025, Ontario and British Columbia did not look like the rest of the country. Both are hot, investment-heavy markets, and national averages smooth over a lot of local pain in them.

Affordability improved in both Canada and the United States

A bank report released around the same time compared the two countries and reached a reasonable conclusion: softer prices plus cheaper borrowing costs made buying a home easier on both sides of the border. On the American side, the charts put affordability at its best level in three years as of late 2025. On the Canadian side, the same measure improved by close to 10 points over the course of 2024.

None of that means housing became cheap. It means that, as of late 2025, the gap between what a household earns and what a mortgage costs had narrowed a little from a very wide starting point. That is still worth something if you are the household in question.

What this meant for a Toronto buyer

The practical way to read a federal budget as a buyer is to ignore the headline totals and ask which part of it lands inside your five-year horizon. The $280 billion and the 430,000 to 480,000 unit target are a decade-shaping story, and they were never going to change what a Toronto home cost in spring 2026. The rate story will. That is the difference between policy you watch and policy you act on.

So the honest advice at the end of 2025 was this: treat the construction targets as a reason for medium-term optimism about supply, and treat the arrears and affordability numbers as evidence that your own monthly payment math had genuinely loosened. Run that math on your own income and job security before anything else. A market that is easier than it was during the peak rate strain of the previous three years is still a market that punishes a stretched budget.

If you want that math run on your own situation, fill out the form at the bottom of this page or book a free consultation, and we will go through your numbers together. Stay well and take care.