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 roseclimbed, and many housing markets across Canada saw home sales plummet, with home prices also falling in most markets.

While the Bank of Canada's aggressive hiking cycle initially saw progress, with inflation lowering below its 2% target in January 2025, tariff fears and the ending of a federally-implemented GST / HST tax holiday in February have led to the measure rising to 2.6%, which could prompt the central bank to hold rates for the foreseeable future.

Bond yields, meanwhile, have dropped to the 2.5 - 2.6% range as investors react to uncertainties from tariffs, putting downward pressure on fixed mortgage rates.

However, lowering borrowing costs are doing little to incentivize borrowers, who remain hesitant to get into the market while a trade war and potential recession hover on the horizon.

March Canada affordability update 

In February 2025, housing affordability in Canada took a favorable turn as declining mortgage rates provided much-needed relief to homebuyers across the nation. The latest Home Affordability Report from Ratehub.ca shows that conditions improved in eight of 13 key markets. 

The report credits these improvements largely to the Bank of Canada’s sixth rate cut on January 29, which drove down the variable mortgage rates. (Its seventh cut, on March 12, is not captured in this data.) As bond yields reacted to emerging US tariff fears, average five-year fixed mortgage rate fell from 4.7% to 4.55% in February. This easing in rates has partly offset the impact of rising home prices in certain markets. 

Hamilton emerged as the standout market, where falling home prices led to a significant decrease in the income needed to purchase an average home — dropping by $3,450 — and a drop in monthly mortgage payments of $100. In Toronto, despite a slight increase in average home prices, the qualifying income declined by $2,090, accompanied by a $64 decrease in monthly payments. Vancouver saw a similar pattern, with a $1,000 decrease in required income and a small $36 reduction in monthly costs, even as home prices climbed by $10,700.

While ongoing uncertainty related to U.S. tariff threats has already led to a 10% decline in home sales, the housing market outlook remains uncertain until there’s more clarity on the form and longevity of threatened tariffs. Further adjustments in mortgage rates and economic conditions will play a crucial role in shaping affordability trends.

Read more- Dropping mortgage rates made it easier to buy a home in February

March Canada housing update

Canada’s housing market saw a sharp decline in sales in February 2025, as tariff concerns and economic uncertainty pushed home sales down 9.8% month over month and 10.4% year over year, according to the Canadian Real Estate Association (CREA). With only 32,195 transactions recorded, this marks the lowest level of sales since November 2023 and the biggest monthly drop since May 2022. Sellers, too, have been hesitant to enter the market, with new listings dropping 12.7% from January. Despite this, inventory levels have continued to rise, reaching 4.7 months of supply, moving closer to the long-term average of five months. The sales-to-new-listings ratio (SNLR) rose slightly to 49.9%, keeping the market in balanced territory even as activity slows. While uncertainty is keeping some buyers on the sidelines, affordability is improving. The national average home price declined to $668,097, a 3.3% annual decrease. Mortgage rates are also falling as the Bank of Canada’s seven consecutive rate cuts have lowered its benchmark interest rate to 2.75%, leading variable mortgage rates to fall to 3.95% and fixed rates to 3.89%.

Read more- Canadian home sales plunge 10% in February due to tariff fears

*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.

Mortgage calculators