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 reading of 1.9% in June 2025, suggests that inflationary pressures remain. As a result, the Bank has opted to hold its overnight rate at 2.75% for a third 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 above 3%. 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 3.89%.

Although borrowing costs are lower than a year ago, housing market activity is showing only modest momentum. While June 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 June?

Canada’s housing affordability took another hit in June 2025, as higher mortgage rates and rising home prices squeezed buyers in nearly every major market. According to Ratehub.ca’s latest Affordability Report, 12 out of 13 cities saw affordability worsen, driven largely by an increase in the average five-year fixed mortgage rate, which rose from 4.38% to 4.48%. This bumped the mortgage stress test rate up to 6.48%, making it harder for buyers to qualify for home loans. With little rate relief and housing prices inching upward, buyers faced steeper income requirements in most cities. St. John’s stood out as the least affordable in terms of change, with average home prices rising by $9,500 and the required qualifying income jumping by $2,450 to $88,910. On the flip side, Toronto was the only market to see a modest improvement, thanks to a sharp $17,700 drop in home prices that reduced the income needed to qualify for a mortgage by $1,160. The report suggests that the brief period of improved affordability earlier in 2025 may be ending. 

Read more- It became tougher to afford a home in nearly all Canadian markets in June

What did we see in Canada’s housing market in June?

Canada’s housing market continued to firm up in June 2025, as national home sales climbed 3.5% year over year to 47,871 units. That’s the second consecutive monthly increase, with sales also up 2.8% from May, a clear sign that buyers are re-entering the market after a cautious spring. The Greater Toronto Area led the upswing, with sales jumping 17.3% since April. Prices, while still soft compared to last year, are beginning to show signs of stabilization. The national average home price fell 1.3% annually to $691,643, but rose 1.5% from May. The MLS Home Price Index, a better reflection of typical home values, was down 3.7% year over year, but held steady on a monthly basis. Supply remains higher than last year, with 97,093 new listings in June, up 8.2% year over year, though slightly down from May. This, combined with stronger sales, pushed the national sales-to-new-listings ratio up to 50.1%, from 47.3% in May. While still within CREA’s balanced market range, the shift points to slightly tighter conditions for buyers. According to CREA, the data suggests the market is entering its recovery phase, fueled by pent-up demand, falling interest rates, and improved buyer sentiment heading into the second half of the year.

Also read: National home sales continue to recover in June

*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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