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 last few years. This has been fuelled by rock-bottom rates thanks in part to two oversized rate cuts in March 2020 by the Bank of Canada, which brought the cost of borrowing at the time from 1.75% to just 0.25%. As a result, demand for housing boomed during the pandemic and sent home prices soaring. This price growth was part of a larger problem: runaway inflation, which peaked at a 40-year high of 8.1% back in June 2022.

In order to tamp down inflation to its target rate of 2%, the Bank of Canada, whose mandate it is to keep inflation under control, implemented a series of 10 rate hikes from March 2022 to July 2023, which sent borrowing costs soaring and bond yields climbing. As a result, both variable and fixed mortgage rates rapidly climbed, and many housing markets across Canada saw home sales plummet, with home prices also falling in most markets.

While the Bank of Canada's rate hikes initially showed progress in bringing inflation down, the recent inflation reading of 2.6% in March 2025, partly due to the end of a GST/HST tax holiday in February and ongoing tariff-related volatility, suggests that inflationary pressures remain. This has led the Bank to hold its rate steady at 2.75% in April 2025, with expectations that borrowing costs may remain high for the foreseeable future.

Bond yields, which influence fixed mortgage rates, have recently dropped to the 2.5% - 2.6% range, as investors react to global trade uncertainties. This has caused some downward pressure on fixed mortgage rates.

Despite these changes, lowered borrowing costs are not doing much to stimulate the housing market. Many potential buyers remain cautious, hesitant to enter the market amid ongoing trade tensions and the looming risk of a recession.

April Canada affordability update 

According to Ratehub.ca’s latest Affordability Report, 10 out of 13 major cities saw improved home affordability conditions due to a combination of reduced mortgage rates, lower home prices, and adjusted mortgage stress test rates.

One of the key factors in this improvement was a sharp drop in mortgage rates in early March. The announcement of a 25% blanket US tariff on Canadian goods led to a drop in US 10-year Treasury yields, which in turn lowered Canadian bond yields. The Government of Canada’s five-year yield fell to 2.5%, which led lenders to decrease the five-year fixed mortgage rates to as low as 3.84%. This drop also lowered the mortgage stress test rate to 6.38%, making home ownership more accessible.

Toronto and Hamilton saw the most significant improvements. In Toronto, the required income to buy an average-priced home decreased by $4,190, largely due to a $5,400 drop in the average home price. Similarly, Hamilton saw a reduction in the required income by $2,700. Fredericton also saw a substantial improvement as home prices fell by $7,900, lowering the required income by $2,500.

Looking forward, housing affordability remains uncertain. While mortgage rates were temporarily lowered due to global tariff-induced market volatility, rising bond yields are putting pressure on mortgage rates to increase again. The Bank of Canada’s decision to keep its overnight lending rate at 2.75% for now suggests that variable mortgage rates will not experience any immediate relief. 

Read more- Lower mortgage rates made it easier to buy a home in March

April Canada housing update

In March 2025, Canadian home sales dropped to their lowest point in 16 years, largely due to ongoing trade war concerns. The Canadian Real Estate Association (CREA) reported a 9.3% decrease in sales compared to March 2024, with just 39,202 homes sold. Shaun Cathcart, CREA’s Senior Economist, emphasized that tariff uncertainty has been a major factor in this slowdown. The national average home price dropped by 3.7% year-over-year in March, settling at $678,331.  While home prices have seen moderate declines, CREA does not expect a significant market correction at this time. The inventory of available homes has increased, leading to a more balanced market. In March, new listings rose by 13.1% from the same month in 2024, with 86,953 properties listed for sale. This rise in supply, coupled with the decrease in sales, resulted in a sales-to-new listings ratio of 45.9%, the lowest since February 2009. CREA considers this ratio to indicate a balanced market, but there are still regional differences, with some areas seeing tight conditions and rising prices, while others are experiencing higher inventory and lower sales.

Read more- Canadian March home sales fall to 16-year low as tariff fears persist

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

Benchmark price vs. average price

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 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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