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 headline inflation (excluding taxes) reading of 2.3% in April 2025, suggests that inflationary pressures remain. As a result, the Bank has opted to hold its overnight rate at 2.75% for a second consecutive time, signaling a more cautious stance as it monitors the impact of tariffs and weakening consumer demand.

Bond yields, which shape fixed mortgage rates, remain elevated, with the Government of Canada’s 5-year bond yield hovering around 2.8%. This has placed a floor under fixed mortgage rates, limiting the potential for further reductions. The best five-year fixed insured rate currently stands at 3.84%.

Despite comparatively lower borrowing costs than a year ago, housing market activity remains muted. Ongoing trade uncertainty, rising inventory levels, and growing concerns over job security and recession risk have left many would-be buyers on the sidelines.

May housing affordability update

Ratehub.ca’s April 2025 affordability report shows that homeownership became slightly more attainable in seven of 13 major cities in Canada. Despite mortgage rates holding steady — with the Bank of Canada keeping its overnight rate at 2.75% and the average five-year fixed rate flat at 4.38% — falling home prices drove the improvement. Weaker sales activity, including a 9.8% year-over-year drop reported by CREA, applied downward pressure on home values, especially in Greater Golden Horseshoe markets like Toronto and Hamilton.

Hamilton led the pack in affordability gains. A $9,600 drop in the average home price lowered the income needed to buy by $1,800 and reduced monthly mortgage payments by $49. Toronto followed closely, with home prices falling $7,500, resulting in $1,400 less required income and a $38 drop in monthly costs. However, not all cities saw relief — Regina experienced the steepest decline in affordability, as prices rose $9,100, raising both required income and mortgage payments.

Looking ahead, housing affordability will depend heavily on the Bank of Canada’s next moves. While high unemployment and softening economic data point to potential rate cuts later this year, stubborn core inflation, driven by rising food and vehicle costs, complicates the outlook. The central bank’s June 4 rate decision will need to balance these opposing pressures carefully.

Read more- Lower home prices in April improved affordability in half of Canada’s housing markets

May Canada housing update

Canada’s housing market remained muted in April 2025 as buyers continued to take a wait-and-see approach. The Canadian Real Estate Association (CREA) reported 44,300 homes sold, marking a 9.8% drop from April 2024 and flat compared to March, which already saw the lowest sales in 16 years. CREA Senior Economist Shaun Cathcart noted that while mortgage rates have come down from their peak, economic uncertainty, particularly around tariffs and recession risks, is the new drag on buyer activity. New listings totaled 94,234 in April — down 1% month over month, but up 1.2% from last year. The sales-to-new listings ratio (SNLR) edged up to 46.8%, remaining just within the balanced market range of 45% - 65%. The national months of inventory held steady at 5.1, consistent with historical norms. Home prices continued to slide. The average national price fell 3.9% annually to $679,866. The MLS Home Price Index, which provides a more stable measure, declined by 1.2% from March and 3.6% year over year. Although affordability has improved on paper, buyers remain hesitant to re-enter the market. The Bank of Canada is expected to deliver two more rate cuts this year, but stubborn inflation driven by global trade disruptions could limit how much borrowing costs fall. Whether conditions shift later this year will depend heavily on upcoming inflation and GDP data, which will shape the outlook for both rates and buyer confidence.

Read more- April Canadian home sales flat as buyers stick to the sidelines

*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.  

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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