Canada housing affordability and market trends
Quick facts
- Home affordability in Canada improved in October 2024 due to a dip in interest rates resulting from the Bank of Canada’s four rate cuts.
- The average mortgage stress test in October 2024 (based on the average five-year fixed rate) came in at 6.86% (down from 7.06% in September 2024).
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.
However, the Bank of Canada’s aggressive rate hiking cycle is now paying off; as of September 2024, inflation now sits at 2%. As inflation appears to be on the decline both in Canada and in the United States, the central bank is now in a position to ease borrowing costs. It has kicked off this new lower-rate era by cutting its trend-setting Overnight Lending Rate four times in a row from June to October 2024. These rate decreases have brought the Overnight Lending Rate down to 3.75% from its previous 5%. They also immediately brought down variable mortgage rates and the rates on home equity lines of credit (HELOC). Bond yields have fallen in response, putting downward pressure on fixed mortgage rates.
While mortgage rates and home prices remain elevated, there is reason to believe that, so long as inflation remains within the Bank’s 2-3% target, mortgage rates will continue to decline. Whether that leads to improved home affordability in Canada remains to be seen, as lower rates could reignite demand, leading to real estate price growth across the country once again.
November Canada affordability update
According to Ratehub.ca's latest report, home affordability improved in most Canadian markets in October 2024, thanks to falling mortgage rates and steady home prices. The average five-year fixed mortgage rate dropped to 4.86%, lowering the mortgage stress test threshold to 6.86%. These changes reduced the income required to qualify for a mortgage in 12 out of 13 cities.
Vancouver saw the greatest improvement in affordability, with required income falling by $4,540 as the average home price dipped by $7,700 to $1,172,000. Toronto followed, with a $4,380 reduction in required income due to an $8,500 decline in average home prices to $1,060,200.
However, smaller markets like Fredericton faced affordability challenges. A $16,100 surge in home prices increased the required income by $1,890, making it the only city where affordability worsened this month.
Looking ahead, further rate cuts from the Bank of Canada are anticipated in December, which could reduce borrowing costs even more. However, increased demand may drive prices higher in 2025, with the national average home price projected to rise by 4.4% next year.
Read more: Bank of Canada rate cuts lead to improved home affordability in October
Mortgage stress test rate vs. income required by month
Frequently Asked Questions
Are Canadian house prices dropping?
Throughout 2024, national home sales have been relatively sluggish as buyers await lower rates and improved buying conditions. Sellers, on the other hand, have been coming out in force, with each month seeing the national housing market positively inundated with new listings. As a result, the national home price in Canada was virtually unchanged on an annual basis in August, down -0.1% to $649,100.
What is the average cost of a house in Canada?
As of August 2024, the national average home price in Canada was $649,100.
Should I buy a house now or wait until 2025 in Canada?
It can be tempting to try to time investing in Canada’s housing market, but if you’re looking to buy a property to live in, the decision should be made based on your financial situation and specific housing needs.
Real estate is generally considered to be an asset that appreciates over a long-term horizon. While factors such as investor speculation and interest rate trends can cause booms and corrections, Canadian home prices have mostly appreciated since the 1970s. However, this growth was accelerated as of January 2015, when the Bank of Canada (BoC) cut its benchmark Overnight Lending Rate by a quarter of a per cent to 0.75%. The cut – the Bank’s first since September 2010 – ended one of the longest rate holds in the central bank’s history and ushered in a new era of housing demand and price growth.
Home prices exploded once again during the early years of the pandemic, as lockdown orders – coupled with a historically low benchmark rate of 0.25% – drove home sales and prices to a new record. While the housing market was initially slow in March and April of 2020, conditions were rapidly heating up by that May. By December 2020, prices had already increased by 17%. Prices continued to rise steadily, and by February 2022, the national average home price had hit an all-time record of $816,720.
However, real estate demand reversed abruptly once the BoC started hiking interest rates in March 2022, in efforts to reign in steep inflation growth. Between then and July 2023, The central bank implemented a historic 10-part hiking cycle, which brought the benchmark cost of borrowing to 5%. Home prices have since fallen by roughly 15%, but still remain quite elevated to where they were before the pandemic.
Now, as the Bank of Canada seems poised to re-enter another rate cutting cycle, the impact on the real estate market is unpredictable. Overall affordability conditions remain challenging for many Canadians, given interest rates are still considerably higher than they were during the pandemic. It’s a good idea to connect with a mortgage professional to assess your current ability to get a mortgage, and your overall home ownership goals.
Where in Canada has the highest house prices?
The most expensive real estate markets in Canada are Vancouver and Toronto, where the average home price remains over $1 million, especially for single-family detached homes. First-time home buyers and high-ratio mortgage borrowers are generally limited to buying condo or strata apartments in these markets.
What is the average mortgage payment?
As of August 2024, the average mortgage payment in Canada stood at $3,312.
What is the lowest mortgage rate in Canada?
As of today, December 6, 2024, the best high-ratio, 5-year fixed mortgage rate in Canada is 4.14%, while the best high-ratio, 5-year variable mortgage rate available in Canada is 4.85%.
Canada housing affordability guide
Jamie David, Sr. Director of Marketing and Mortgages
November Canada housing update
On November 15, 2024, the Canadian Real Estate Association (CREA) reported that home sales across Canada saw a 30% year-over-year increase in October 2024, with 44,041 transactions. This marked a 7.7% increase from September. The Greater Toronto Area and British Columbia’s Lower Mainland led the way with sales growth of 43.3% and 32.4%, respectively.
This resurgence comes as the Bank of Canada’s four rate cuts since June, including a substantial 0.5% reduction in October, have lowered borrowing costs. Buyers are taking advantage of declining mortgage rates, with further cuts anticipated in December and throughout 2025.
The national average home price increased by 6% year-over-year to $696,166, but the MLS Home Price Index (HPI) dipped 0.1% from September, reflecting relatively flat pricing trends for most of the year. Total new listings in October were slightly down by -3.5% compared to September, but overall supply remains higher than a year ago, with 174,458 properties available, an 11.4% increase.
However, signs of tightening supply are emerging. The months of inventory decreased to 3.7 from 4.1 in September, approaching seller’s market territory. The sales-to-new-listings ratio also rose to 58%, surpassing the long-term average of 55%, suggesting growing buyer competition.
With additional rate cuts expected, activity in the housing market may continue to accelerate, potentially increasing prices if new listings fail to keep pace with rising demand.
Read more: National home sales rise 30% in October
Average home price by city by month
National sales vs. fixed and variable mortgage rates
*National home data sales data for September is not yet available, as home sales data for a given month is not published until the following month. September's data will become available in mid-October 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.