Rising home prices made it more challenging to buy a home in March
Ratehub.ca March 2024 Affordability Report
Penelope Graham, Director of Content
It became all the more challenging to purchase a home in March despite stabilizing mortgage rates and a slightly lower stress test.
The latest affordability study conducted by Ratehub.ca finds that home prices increased by a large enough margin to offset any modest improvements in borrowing costs, with the income required to purchase a home rising by tens of thousands of dollars in some markets.
The study crunches the minimum annual income required to buy an average home in some of Canada’s major cities based on March 2024 and February 2024 real estate data. The report illustrates how changing mortgage rates, stress test rates and real estate prices are impacting the income needed to buy a home.
“While mortgage rates stayed relatively flat month over month, home prices increased, causing affordability to worsen,” says James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender.
“The minimum annual income required to purchase an average home increased in 12 of the 13 cities we looked at because of the increase in home prices.”
Stable mortgage rates couldn’t offset rising prices
The March report marks the second month in a row where rising home prices have erased more favourable mortgage conditions, after a slight improvement in January. The data also reveals today’s borrowers are being stress tested at an average of 7.62%, based on the average five-year fixed mortgage rate of 5.62%. That’s roughly flat from the 7.63% recorded in February.
Toronto home buyers saw their affordability decline by the most as home values rose by nearly 20% month over month, to an average of $1,113,600. “Toronto saw the most significant increase again with $3,400 in additional income required to purchase the average home,” Laird says. “Toronto also saw the highest home price jump, increasing by $19,700.”
That was followed by Hamilton, where home prices increased $14,600 between February and March, to an average of $850,500. As a result, buyers there must now earn $2,540 more to purchase the average-priced home.
The only outlier was Halifax, where home prices actually declined slightly on a monthly basis.
“Halifax was the only city that saw improvement with $350 less income needed to purchase the average home. Home prices here were also down in this city by $1,600,” Laird adds.
Ratehub.ca March 2024 Affordability Report
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 March 2024 and February 2024. Average home prices are from the CREA MLS® Home Price Index (HPI).
Home prices are on the rise along with rate cut expectations
Home prices have been steadily heating over the first few months of the year, as home buyers and sellers grow increasingly optimistic over the timing of interest rate cuts; it’s largely anticipated that the Bank of Canada will be in the position to slash its trend-setting cost of borrowing by June or July.
The most recent March report out from the Canadian Real Estate Association shows that while home sales remained roughly unchanged year over year at 1.7%, the average home price ticked up by 2% to $698,520. As well, new supply continues to hit the market, with 10% more homes in the mix than at the same time last year.
As CREA’s Senior Economist Shaun Cathcart put it, it remains to be seen whether that new supply will be snapped up as the typically hot spring market gets underway.
“We’ll have to wait for the April data to really understand how buyers are responding to all these new properties for sale, but if you look at last spring as a guide and add to that record population growth in the last year and a central bank that is far more likely to cut this summer than raise like it did last year, it could get interesting,” he stated in CREA’s release.
“Will the story be high interest rates keeping a lot of people on the sidelines this year, or the much expected and anticipated first rate cuts enticing a lot of people back into the market? Probably a bit of both.”
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Penelope Graham, Director 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.