It became tougher to buy a home in April, despite lower mortgage rates

Mortgage rates are finally starting to trend lower, but there’s little relief for home buyers as affordability conditions worsened across Canada in April.

The latest affordability analysis by Ratehub.ca finds that, due to rising home prices, it became tougher to qualify for a mortgage in 10 out of 13 major markets last month.

The study crunches the minimum annual income required to buy an average home in some of Canada’s major cities based on April 2024 and March 2024 real estate data. The report also takes into account how changing mortgage rates, the mortgage stress test, and real estate prices are impacting the income needed to buy a home. 

Rates and prices moving in “opposite directions”

According to the data, the average five-year fixed mortgage rate decreased slightly between March and April, from 5.62% to 5.5%. As a result, the average mortgage stress test, which requires borrowers to prove they could afford to carry their mortgage at a rate 2% higher than the one they receive from their lender, currently sits at 7.5%.

“The two key variables that impact home affordability, home values and interest rates, moved in opposite directions,” says James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender. "Interest rates are down and home values are up in 12 out of 13 cities we looked at.

“The increase in home values was enough such that affordability worsened in 10 of 13 cities despite the rate drop.”

Montreal home buyers saw greatest improvement in affordability

Montreal was the only city to see a month-over-month decrease in the average home price, which positioned it as the top market for improved affordability. A home buyer there could purchase a property at an average of $530,300 (down $1,000 from March), and qualify for a mortgage with an income of $110,380 – down $1,170 from the previous month.

Data in the chart is based on a mortgage with 20% 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 April 2024 and March 2024. Average home prices are from the CREA MLS® Home Price Index (HPI).

Vancouver and Victoria ranked second and third for improved affordability, despite a slight increase in their respective home prices.

“Though home prices increased in Vancouver and Victoria, the decrease in mortgage rates was enough to still produce an improvement in affordability,” Laird says.

Meanwhile, Halifax experienced the largest deterioration in affordability conditions, a stark turnaround from the March report, where the maritime city was the only market to see an improvement; this is largely due to the city’s overall lower home prices, which can lead to more volatile swings as demand picks up.

“Halifax saw the most significant increase with $2,200 in additional income required to purchase the average home. However, in last month’s study (March 2024 versus February 2024 numbers), Halifax was the only city to see improvement in home affordability. The change in affordability in Halifax this month is due to the rise in home prices,” Laird adds.

High mortgage rates are still squeezing would-be home buyers

In the latest data release from the Canadian Real Estate Association, James Mabey, Chair of CREA’s 2024-2025 Board of Directors, points out that home sales remain constrained by steep borrowing costs; national home sales slowed by -1.7% from March. However, home sellers are very active, with a 2.8% monthly uptick in the number of newly-listed homes.

“After a long hibernation, the spring market is now officially underway. The increase in listings is resulting in the most balanced market conditions we’ve seen at the national level since before the pandemic,” he stated in the board’s release.

“Mortgage rates are still high, and it remains difficult for a lot of people to break into the market but, for those who can, it’s the first spring market in some time where they can shop around, take their time and exercise some bargaining power. Given how much demand is out there, it’s hard to say how long it will last.”

It’s widely anticipated that home buyers will return to the market once the Bank of Canada starts cutting its trend-setting overnight lending rate, which could occur as early as its next announcement on June 5, 2024.

Also read:

• National home sales fall in April as buyers stick to the sidelines
• April home sales fall as Toronto buyers hold out for rate cuts
• Another rate hold from the US Federal Reserve in May
• Should you extend your amortization at mortgage renewal time?