Canada housing affordability and market trends

Canada housing affordability

It’s no secret that buying a home in Canada has become increasingly difficult over the past decades. This has been fuelled further by a housing boom during the pandemic, when borrowing rates fell to a record low of 0.25%. Housing demand – and real estate prices – soared as a result, while the end of lockdown measures caused inflation to spike, peaking at a 40-year high of 8.1% in June 2022.

This prompted a rapid 10-part series of rate hikes from the Bank of Canada, which has a mandate to keep inflation below a 2% target. These took place between March 2022 and July 2023, raising the overall cost of borrowing for Canadians.

Fast forward to today, and it’s a very different economic climate. Inflation has now been lowered to 1.9% (as of August 2025), and the Bank of Canada is poised to resume cutting rates, after implementing seven in a row between June 2024, and March 2025, which brought its overnight lending rate back down to 2.75%. Most recently, it cut its rate again in its September announcement, bringing it to 2.5%.

Policymakers emphasized they will continue monitoring the effects of tariffs, weakening exports, and consumer demand before making further moves.

Bond markets have also adjusted to the expectation of a rate cut. The Government of Canada’s five-year bond yield has declined into the 2.6% range, prompting some lenders to trim their fixed mortgage offerings. The best five-year fixed insured rate now sits at 3.94%.

Although borrowing costs are lower than a year ago, housing market activity is showing only modest momentum. While August saw a pickup in sales, ongoing trade uncertainty, rising inventory levels, and concerns over job security and economic slowdown are still causing some buyers to remain cautious.

What changed in Canada’s housing affordability in August?

Housing affordability slipped in August 2025 as mortgage rates inched higher, according to Ratehub.ca’s latest report. The analysis showed that buyers in seven of 13 major Canadian markets faced higher income requirements to qualify for an average-priced home. The average five-year fixed rate rose to 4.49% from 4.40% in July, which in turn pushed the stress test qualification rate to 6.49%. This increase in borrowing costs was the primary factor eroding affordability across much of the country.

Not all regions experienced tighter conditions. Cooling demand and growing inventory led to modest price declines in several cities. Victoria recorded the largest affordability gain, with average prices falling by $13,600 to $881,000, reducing the necessary household income by $1,212. Vancouver also improved slightly, as a $14,900 dip in prices trimmed required income by $1,020, though it remains Canada’s least affordable market at an average of $1.15 million.

While August highlighted affordability challenges, September has already shown signs of relief. Following the Bank of Canada’s quarter-point rate cut on September 17, lenders reduced their prime rates, bringing the lowest five-year variable mortgage option down to 3.7% from 3.95%. Fixed rates also eased as bond yields declined, reflecting investor expectations of additional monetary policy support. As of late September, the lowest five-year fixed mortgage rate available sits at 3.94%.

Canada housing market update for September 2025

Canada’s housing market saw its busiest August since 2021, extending the recovery that began in the spring of 2025. Data from the Canadian Real Estate Association (CREA) shows 40,257 properties changed hands in August, marking a 1.1% month-over-month increase and a 1.9% gain compared to last year. However, prices remained relatively steady despite the uptick in activity. The national average home price was $664,078—1.8% higher than a year ago, but essentially unchanged from July. CREA’s MLS Home Price Index, which filters out the extremes of the market, continued to show a 3.4% annual decline and was flat on a monthly basis. New supply also gained traction in August, with 75,959 homes listed for sale. That’s a 2.6% increase from July and 6.1% more than the same time last year. With listings growing faster than sales, the sales-to-new-listings ratio eased to 51.2%, staying comfortably within CREA’s balanced range of 45%–65%. Inventory levels edged down to 4.4 months, the lowest since January, but still point to stable conditions overall. According to CREA’s Senior Economist, Shaun Cathcart, additional supply often sparks stronger sales in the fall, and with the potential for lower interest rates in September, market activity could strengthen further.

Read more: Canadian home sales hit highest August since 2021

*National home data sales data for May is not yet available, as home sales data for a given month is not published until the following month. May's data will become available in mid-June upon publication of home sales figures by CREA.  

What’s the difference between benchmark and average home prices?

When reporting on housing price trends, real estate boards use two different metrics: the average home price, and the benchmark home price. These two measures provide different insights into price trends, and how the market is evolving in both the short and long term.

• The average home price is calculated by adding the sale price of all the homes sold over a period of time, and then divided by the number of transactions. This provides the average price per unit. However, because the mix of the home sold can fluctuate significantly from month to month or by year, average home price trends can be more volatile, and do not always offer an accurate portrayal of the most common home sale in a given market.
• A benchmark home price is based on an index that’s been developed based on specific housing features, and how they change in terms of demand and value to home buyers over time. This provides a more accurate picture of the most typical type of home sold in a specific market, and that has changed over time. An example of a benchmark home price in the MLS Home Price Index created and used by the Canadian Real Estate Association (CREA). This is based on more than 15 years of CREA’s proprietary MLS System data, as well as statistical models to determine the “typical” home type and value per market.

What is the sales-to-new‑listings ratio (SNLR)?

The “SNLR” stands for sales-to-new-listings ratio. It is a measure used by real estate boards to gauge the level of competition within a given housing market, and whether or not it's considered to be a “balanced” market, or more favourable to buyers or sellers. The SNLR is calculated by dividing the number of home sales by the number of newly-listed homes brought to market during a period of time. For example, if there were 500 home sales in a specific city during the month of March, and 750 homes brought to market, the SNLR would be:

(500/750)*100 = an SNLR of 66%

According to the Canadian Real Estate Association:

• A ratio of 45 - 65% is considered a balanced market. This means there is a sufficient supply of homes available for sale to meet home buyer demand. These conditions help keep home price growth stable, and buyers are less likely to encounter excessive multi-offer situations that can drive prices higher.
  
  
• A ratio below 45% is considered to be a buyers’ market. This means there is an oversupply of available homes for sale and not enough buyer demand. Home prices tend to decrease in buyers’ markets as homes often sell for less than they’re listed, and multi-offer situations are less common.
  
  
• A ratio above 65% is considered to be a sellers’ market. This defines a market where there are too few homes available for sale to satisfy buyer demand, and competition to purchase listings is fierce. Home prices are driven higher in sellers’ markets as buyers must often engage in bidding wars on the same property.

How the stress test impacts mortgage qualification

The mortgage stress test is a mortgage qualification requirement that ensures borrowers could still afford to make their payments in the case that interest rates should rise. Mortgage applicants must prove they could still afford their mortgage under the higher of the following two scenarios:

• The mortgage rate they receive from their lender, plus 2%.
  
• The Minimum Qualifying Rate (MQR), which is currently 5.25%. However, given there are no contract mortgage rates currently available at 3.25% or lower, this threshold is obsolete, and will remain so unless Canadian mortgage rates considerably decrease. 

For example, let’s say you get a mortgage rate of 5% from your mortgage lender. You would actually need to have the sufficient borrowing criteria – such as income, debt ratios, and down payment size, etc. – to qualify for a mortgage at 7%. 

The mortgage stress test also reduces the size of mortgage borrowers will qualify for. This is because when you have a higher mortgage rate, it results in a higher monthly payment to cover the additional cost of borrowing.

For example, let’s say a borrower has a household income of $100,000, and buys a home priced at $454,161, with a down payment of $50,000. However, because the borrower must qualify at a rate of 7.64%, the purchase price they’d actually qualify for would be just $387,670 – a difference of $66,691.

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