Recovering home prices made it tougher to afford a home in May
Ratehub.ca May 2025 Affordability Report
Home shoppers have enjoyed a rare combination of lower mortgage rates and dropping prices this spring – but the latest data shows time may be running out for easy real estate buying conditions.
The latest Affordability Report from Ratehub.ca found that in May, it became tougher to purchase a home in eight out of 13 major housing markets, largely due to rising home prices and recovering sales.
The report measures how affordability evolves on a month-over-month basis, based on real estate data, changing mortgage rates, and the mortgage stress test. Affordability is measured by the income required to qualify for a mortgage to purchase the average-priced home in each market, as well as corresponding monthly mortgage payments.
However, mortgage rates were largely stagnant in May; the Bank of Canada had opted to keep its benchmark overnight lending rate – which sets the pricing floor for prime and variable mortgage rates – unchanged at 2.75%. Fixed mortgage rates, meanwhile, were kept in a holding pattern due to elevated – though largely stable – bond yields.
As a result, the average five-year fixed mortgage rate used in the study, and corresponding mortgage stress test rate, were unchanged at 4.38% and 6.38%, respectively.
May housing data suggests early signs of rebound
Shifts in affordability were largely due to changes in home price, as demand is starting to firm up in regional markets across Canada. According to the latest data from the Canadian Real Estate Association (CREA), home sales increased on a monthly basis for the first time in more than six months, putting a stop to falling prices. While early, this could pose evidence that the market is starting to defrost, as buyers shake off ongoing tariff uncertainty.
“It’s only one month of data, and one car doesn’t make a parade, but there is a sense that maybe the expected turnaround in housing activity this year was just delayed for a few months by the initial tariff chaos and uncertainty,” stated Shaun Cathcart, CREA’s Senior Economist, in the association’s May release.
The average Canadian home price came in at $691,299, still down 1.8% on an annual basis, but marking a 1.9% increase from April.
However, price and sales growth differs in markets across Canada. According to the May data, Hamilton continued to post the deepest price decreases – and corresponding improvement in affordability – where smaller, more moderately priced markets continued to see sustained activity and rising prices.
May 2025: 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 April and May 2025. Average home prices are from the CREA MLS® Home Price Index (HPI).
While the majority of the cities saw affordability worsen, the biggest change was actually in Hamilton where affordability saw a massive improvement with $3,480 less income required to purchase the average home. This is due to home prices dropping (-$18,300), the biggest change of all the cities. This is the second consecutive month of Hamilton leading the the ranking in terms of improvement.
Since mortgage rates remained flat, monthly mortgage payments were impacted by home prices only. The Hamilton borrower in this scenario would save $93 dollars on their monthly mortgage payment ($1,116 per a year) in May compared to if they bought in April.
St. John’s, meanwhile, saw the most significant increase with $1,690 in additional income required to purchase the average home. This is due to home prices rising ($8,900), the biggest increase of all the cities. The St.John’s borrower in this scenario would pay an additional $45 dollars on their monthly mortgage payment ($540 per a year).
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Penelope Graham, Head of Content
Penelope has over a decade of experience covering real estate, mortgage, and personal finance topics and her commentary on the housing market is featured on both national and local media outlets.