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 past decades. This has been fuelled further by a housing boom during the pandemic, when borrowing rates fell to a record low of 0.25%. Housing demand – and real estate prices – soared as a result, while the end of lockdown measures caused inflation to spike, peaking at a 40-year high of 8.1% in June 2022.

This prompted a rapid 10-part series of rate hikes from the Bank of Canada, which has a mandate to keep inflation below a 2% target. These took place between March 2022 and July 2023, raising the overall cost of borrowing for Canadians.

Today, the economic landscape looks dramatically different. Inflation has cooled significantly, with December’s CPI reading at 2.4%, and core measures showing broad easing. After nine cumulative rate cuts between June 2024 and October 2025, the Bank has held its overnight rate steady at 2.25% for a second time, in its January announcement. This places the policy rate at its lowest level since early 2022 and keeps the prime rate steady at 4.45%.

The Bank signalled that future moves will depend on how trade disruptions, tariff uncertainty, and global demand affect Canada’s economy in the months ahead.

Bond markets have already reacted to this economic data. The Government of Canada’s five-year bond yield is now in the range of 2.8%, limiting further declines in fixed-rate pricing. The lowest five-year fixed insured rate now sits around 3.84%, up from earlier in the fall.

Overall, Canada’s housing market remains cautious. Lower interest rates are helping improve affordability at the margin, but many buyers are still sitting on the sidelines due to economic uncertainty, job security concerns, and elevated housing supply in several major markets.

What changed in Canada’s housing affordability in 2025?

Ratehub.ca’s December 2025 Affordability Report shows that home-buying conditions eased in eight of Canada’s major markets in 2025. While elevated prices continued to challenge buyers in high-cost cities, softer market conditions helped reverse some of the pressure that had built up over the past few years, allowing more households to qualify for a mortgage by the end of the year.

The report tracks affordability by calculating the income required to purchase an average-priced home in each city, using local home prices, prevailing mortgage rates, and the federal mortgage stress test. Over the course of 2025, the average five-year fixed rate used in the analysis fell from 4.7% in January to 4.46% in December, lowering the qualifying stress rate from 6.7% to 6.46%. These changes, combined with price declines, led to meaningful affordability improvements. 

Hamilton posted the largest gain, with home prices dropping $80,200 and the required income falling by $18,610. Toronto followed, as historically weak sales and rising inventory pushed prices down $75,300, reducing the income threshold by $18,590. Vancouver also saw conditions ease, with prices declining by $53,600 and the qualifying income falling by $15,100.

Looking ahead, further affordability gains may be more limited in 2026. The Bank of Canada has indicated that interest rates are likely to remain on hold, meaning variable-rate borrowing costs may not decline much further. Fixed mortgage rates have also steadied as bond yields stabilized. At the same time, the Canadian Real Estate Association expects home sales to pick up modestly this year, particularly in British Columbia and southern Ontario, which could place renewed upward pressure on prices. For buyers, this suggests that the affordability improvements seen in 2025 may be harder to replicate as market activity gradually recovers.

Canada housing market update for December 2025

Canada’s housing market entered the final stretch of the year with little momentum in either direction. National home sales slipped 0.6% in November, according to data from the Canadian Real Estate Association (CREA). While sales were still down roughly 11% compared to November 2024, the modest monthly change suggests the market is settling into a steady rhythm rather than moving into a slowdown. 

Supply conditions continued to reinforce a balanced market backdrop. New listings declined 1.6% from October, helping to offset weaker sales and prevent inventory from building quickly. This kept the national sales-to-new-listings ratio largely unchanged, edging up to 52.7% from 52.2% the month prior. Ratios in the low-50% range are typically associated with balanced conditions, confirming that neither buyers nor sellers hold a clear advantage.

Inventory levels were similarly stable. National months of inventory held at 4.4 months in November, unchanged from the range seen between July and October and close to the historical norm of five months. This level remains well within balanced territory. Prices showed modest downward pressure as the year drew to a close. The MLS® Home Price Index slipped 0.4% month over month, while the non-seasonally adjusted index was down 3.7% compared to a year earlier. The national average sale price also fell 2% year over year to $682,219. 

Heading into 2026, the November data suggest a housing market that is stable but cautious. Sales have cooled from earlier in the year, inventory remains balanced, and prices are easing modestly rather than rebounding sharply. For buyers, this environment continues to offer a relatively favourable mix of conditions.

Read more: Canadian home sales hold steady in November

*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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