Home affordability improved in August, but rising fixed rates could erase some gains

Buying a home got a little more affordable in August as average prices fell across most major markets, but rising bond yields are putting pressure on fixed mortgage rates and could quickly change the picture for buyers.

Home affordability improved in 10 of 13 major Canadian housing markets in August, according to the latest Ratehub.ca home affordability report. Toronto, Vancouver, and Montréal saw the biggest improvements, while Halifax, Ottawa, and Fredericton were the only markets where affordability worsened.

Home prices primarily drove the improvement. The average five-year fixed mortgage rate used in Ratehub's analysis edged up by just one basis point, from 4.54% in July to 4.55% in August, so it had very little impact on the month-over-month affordability changes.

However, the rate environment is becoming less favourable for borrowers. While the average Big Five Bank rate remained relatively stable, the lowest five-year fixed rate available on the market has increased to 4.24%, up 15 basis points from last month. Meanwhile, fixed rates under 4% that were still available in early September have now disappeared.

Ratehub's affordability analysis looks at the income required to purchase the average-priced home in 13 major Canadian cities. It uses national real estate data on home prices, mortgage rates, and the mortgage stress test to show how much a prospective buyer would need to earn to qualify for a mortgage on the average-priced home in their local market.

Lower home prices were the main driver of affordability changes

August's results demonstrate how closely home prices can affect affordability. Home prices declined in 10 of the 13 markets we track. Toronto saw the largest decline at $8,700, followed by Vancouver at $6,900 and Montréal at $6,300.

Those price declines helped reduce the income required to qualify for a mortgage. The one-basis-point increase in the average Big Five Bank five-year fixed rate had a minimal impact on affordability this month.

However, borrowers can’t ignore mortgage rates, particularly amid today’s market volatility. The lowest fixed rates available have been rising throughout September, which could put pressure on affordability in the months ahead if the trend continues.

Here's how affordability changed in August:

August 2026: How much did you need to earn to buy a home in Canada?

This report is for illustration purposes only. Data is based on a mortgage with a 10% down payment, 25-year amortization, $4,000 annual property taxes and $150 monthly heating. Mortgage rates are the average of the Big Five Banks’ 5-year fixed rates in August 2026 and July 2026. Average home prices are from the CREA MLS® Home Price Index (HPI).

Toronto saw the biggest improvement in affordability in August, with $1,510 less income required to purchase the average-priced home. The average home price fell by $8,700, from $934,600 in July to $925,900 in August, lowering the monthly mortgage payment by $40. For a Toronto buyer, that’s approximately $480 in annual savings compared with purchasing the average-priced home in July.

The latest data from the Toronto Regional Real Estate Board (TRREB) shows Toronto’s housing market remains relatively soft. August home sales were down 2.1% year over year, while new listings fell 14.1%. Prices currently remain below 2025 levels, but the decline in new listings could put upward pressure on prices if inventory continues to tighten.

Vancouver and Montréal had the next biggest affordability improvements, with $1,130 and $1,110 less income required, respectively. Average home prices fell by $6,900 in Vancouver and $6,300 in Montréal.

While affordability improved in most markets, Halifax saw the biggest deterioration. Its average home price rose $6,500 to $563,800, the largest increase among the 13 markets, pushing the income required to purchase the average home up $1,360. The monthly mortgage payment also increased by $36, meaning a Halifax buyer would pay approximately $432 more per year than if they had purchased the average-priced home in July.

Ottawa and Fredericton were the only other markets where affordability worsened. Required income increased by $830 in Ottawa and $650 in Fredericton, following home price increases of $3,700 and $3,100, respectively.

How will mortgage rates affect home affordability in Canada for the rest of 2026?

Mortgage rates are becoming an increasingly important factor in home affordability. While lower home prices helped improve affordability in August, fixed mortgage rates have moved higher in September. For homebuyers, that means a lower purchase price won't automatically translate into a lower cost of borrowing.

The five-year Government of Canada bond yield has risen sharply in September amid continued concerns about inflation, elevated energy prices, government borrowing, and volatility in global bond markets.

Elevated energy prices and inflation uncertainty are driving significant volatility in the bond market and, consequently, fixed mortgage rates. Lenders have already responded by increasing their rates over the last few days. The lowest five-year fixed rate in Canada has now risen from 4.09% to roughly 4.24%, with no fixed-rate options remaining below 4%.

The outlook for fixed mortgage rates will depend largely on what happens next to Government of Canada bond yields. If inflation and energy-price pressures persist, yields could remain elevated, keeping upward pressure on fixed mortgage rates. However, if those pressures ease and bond yields stabilize or decline, fixed mortgage rates could follow.

For homebuyers, this means a lower home price doesn't necessarily mean a lower cost of borrowing. A decline in purchase price can reduce the income needed to qualify for a mortgage, but a higher mortgage rate can increase both monthly payments and the income required to qualify.

What this means for homebuyers in 2026

For Canadian homebuyers, the rest of 2026 could bring a mixed affordability picture. Home prices have improved affordability in most markets, but housing activity remains subdued and fixed mortgage rates are moving higher. National home sales fell 0.7% month over month in August, while the MLS Home Price Index was unchanged from July and down 3% year over year.

The outlook also varies by market. In the GTA, August sales fell 2.1% year over year, while new listings dropped 14.1%, pointing to tighter supply and potentially less downward pressure on prices. CREA’s latest forecast calls for the national average home price to rise 1.1% in 2026, although regional conditions remain uneven.

If you're ready to buy, focus on the total cost of homeownership, including your mortgage rate, down payment, monthly payment, property taxes, and other housing costs. Comparing fixed and variable rates can also help you understand how different rate scenarios would affect your budget.

If you're shopping for a home, a mortgage rate hold can protect you from rising rates for up to 120 days, depending on the lender and mortgage product. For buyers who aren't ready to purchase, keeping an eye on home prices and mortgage rates can help you determine when the overall cost of buying fits your budget.

Affordability for the rest of 2026 will depend on both home prices and mortgage rates. Even if prices remain relatively soft, higher borrowing costs can offset some of those gains.