Lower rates and prices made it easier to buy a home in 8 of 13 markets in 2025

When it comes to mortgage affordability, 2025 will be remembered as a year of tentative relief. The Bank of Canada followed up on the five rate cuts it doled out in 2024 with an additional four, bringing the central bank’s benchmark rate – which in turn sets lenders’ prime rates and variable-based borrowing prices – down by a cumulative 275 basis points, from its previous high of 5%.

This gave prospective home buyers a considerable break – as a result, the average five-year variable mortgage rate in Canada dropped from 5.95% in May of 2024 to 3.45% today – a low not seen since the summer of 2022. Fixed mortgage rates also decreased significantly over the course of the year, ranging from the upper 4 - 5% in 2024, to 3.84% today.

Of course, whether or not buyers can find traction in their local market depends on more than just interest rates; elevated home prices pose the largest hurdle for those trying to get onto the property ladder, particularly in Canada’s priciest markets such as Toronto and Vancouver. However, buyers gained footholds into both of these markets this year, and more, as sluggish home sales and a build-up of inventory cooled conditions in the majority of major Canadian cities in 2025.

Ratehub’s Affordability report, which tracks how price and mortgage qualification conditions fluctuate across Canada on a monthly basis, finds that, over the course of 2025, it became easier to buy a home in eight of 12 markets.

The study, which uses mortgage rate and home price data, as well as changes to the mortgage stress test, crunches how much a home buyer would need to earn in order to qualify for a mortgage on the average-priced home in their city. 

The latest edition shows the average five-year fixed mortgage rate used in the study dipped from 4.7% in January 2025, to 4.46% in December, with the corresponding stress test rate dropping from 6.7% to 6.46%. Combined with lower home prices, this meant buyers in some cities could earn nearly $20,000 less to qualify for a home in December compared to the start of the year.

2025 year-in-review: How much do you need to earn to buy a home in Canada?

Overall, the City of Hamilton saw affordability conditions improve the most in 2025. The average home price ended the year at $725,200, down a whopping $80,200 from January’s average of $805,400. As a result, the required income to purchase a home in the Hammer dropped by $18,610 to $153,090. This reflects a year of softening market conditions in Hamilton, as an abundance of supply rose steadily. The city, which is a steel manufacturing hub, has also been hard-hit by Trump’s tariffs, leading to a decline in income for many, and perhaps more buyers putting off a home purchase entirely.

In second place is the City of Toronto, which just experienced the lowest annual sales volume in 25 years, partially due to a growing glut of condo inventory. Home prices fell by $75,300 by the end of the year, to an average of $942,300. That lead to the required income to purchase a home to decline by $18,590, to $194,430.

Rounding out the top three for most improved affordability is Vancouver; like Toronto, an already-high average home price posed barriers for many buyers, along with growing unease over an uncertain economy and job landscape. The average home price decreased by $53,600 between January and December, to $1,114,800. That meant the average Vancouver home buyer would need to earn $15,100 less to buy a home, at an income of $227,300.

Will home affordability continue to improve in 2026?

There are a number of factors at play that will influence the direction of home prices this year; but if economic and real estate board forecasts are correct, they’re likely to increase slightly. The first reason is that interest rates aren’t expected to decrease much, if at all, in 2025. The BoC has now clearly indicated that it plans to keep its benchmark rate on hold for the foreseeable future, and could even be in the position to hike rates again toward the end of the year, if the economy firms up.

Fixed mortgage rates, meanwhile, have held firm since December, as bond investors seem much less reactive to fresh US trade upheaval and growing geopolitical tension. Unlike in April, when bond yields – and fixed rates – plunged in response to Trump’s “Liberation Day’ tariff announcements, they’ve barely budged following the US' invasion of Venezuela. That said, there’s plenty of room for volatility this year; political efforts to force the Federal Reserve (the BoC’s American counterpart) to prematurely cut interest rates could push global bond yields lower, which will in turn impact fixed rate costs in Canada. For the time being, though, fixed rates are likely at their floor.

Home sales are also poised for a steady recovery this year, according to the Canadian Real Estate Association (CREA). The national board has revised their 2026 forecast to call for a 5% increase in transactions, especially in the British Columbia and southern Ontario regions, which would indeed put upward pressure on prices.

Much will depend on whether sidelined home buyers – many who’ve been waiting for an interest rate floor – now feel confident enough to enter the market… and whether there will be fresh surprises to upend current forecasts.

Also read:

• Canadian housing market ends 2025 on a chilly note
• Toronto home sales hit a 25-year low in 2025
• What can mortgage borrowers expect in 2026?
• Bank of Canada holds target interest rate at 2.25% in December