The Bank of Canada made a long-awaited rate cut on June 5, but the effects of lower mortgage rates have yet to trickle down into housing market data. That was evident in May, as real estate affordability continued to worsen for would-be home buyers.
The latest monthly affordability report from Ratehub.ca, which calculates the minimum income required to qualify for a mortgage for the average-priced home in Canada’s major markets, found the measure increased in 11 of the 13 cities studied. (Ratehub and MoneySense are both owned by Ratehub Inc.)
The report analyzes regional real estate data, as well as mortgage and stress test rates, to see how affordability is changing in real time. In May, the average five-year fixed mortgage rate was 5.49%, resulting in a mortgage stress test rate of 7.49%. (The mortgage stress test requires borrowers to prove they can afford a mortgage at a rate 2% higher than the one they get from their lender.)
May’s decline in affordability was due to a combination of stagnant interest rates—which were little changed from April—and a short-term uptick in home prices in most Canadian cities. While the Canadian Real Estate Association (CREA) reports the average national home price dipped by 4% on an annual basis to $699,117, real estate values rose on a month-over-month basis in many regions, particularly those where home prices are still below the $1-million mark.
Let’s take a look at what this means for Canadian home buyers in the most affected regions.
Canadian cities where affordability improved
Halifax: Affordability returns to the east coast
Canada’s largest Maritime city has experienced considerable volatility in home prices on a month-by-month basis; the average income needed to get a mortgage actually declined in May—a turnaround from April, when the measure increased.
This month, the average home price slipped by $11,000 to $539,200, in turn pulling down the income required to buy a home by $2,070, to $111,890.
Slightly lower home prices were influenced by soft sales in the province in May; according to the Nova Scotia Association of Realtors, transactions rose just 1% from last year, and they remain 4.8% below the five-year average for the province.
Toronto: A surprise entry on the affordability scale
Make no mistake, the city of Toronto continues to be one of Canada’s priciest real estate markets, with the average home clocking in at $1,117,400 in May. However, “The Six’s” typically hot spring selling season has been chilly, with sales down 22% from May 2023. While the Toronto Regional Real Estate Board (TRREB) believes there’s plenty of pent-up buyer demand, would-be purchasers are waiting for lower mortgage rates before making a move.
Combined with an influx of new supply, that’s put downward pressure on home prices, with the average decreasing $5,900 compared to April. That in turn has reduced the income a buyer needs by $1,250, to $215,920.
Canadian cities where affordability worsened
Hamilton: Prices on the rise in the Golden Horseshoe
Hamilton’s popularity has been steadily growing among southern Ontario home buyers, as it boasts more affordable housing stock than neighbouring cities, at an average price of $868,300. However, those relatively cheaper prices helped fuel buyer activity, which pushed the average home price up by $9,400 between April and May—the largest increase of all cities studied.
That’s resulted in the average home buyer needing an income of $171,100 to afford the average-priced home, an increase of $1,550.
Victoria: A small—but sizzling—market
Victoria’s housing market was abuzz in May with sales up 6.4% annually. However, it’s a relatively small market, which means prices can swing more dramatically when demand picks up. According to the study, home buyers there must have an income of at least $172,180—an increase of $1,230 compared to April—to afford the average home price of $874,300 (up $7,600 month-over-month).
Ottawa: Still a steal, but heating fast
The city of Ottawa is one of Canada’s most affordable markets (the average home price was $651,300 in May), but a stable spring market has pushed prices up by $6,500 compared to the previous month. As a result, home buyers there must earn $132,060, an increase of $1,060.
Housing affordability across Canada’s major cities
Check out the chart below to see how affordability changed between April and May in Canada’s main housing markets, based on the income required to qualify for a mortgage.
May 2024: How much do you need to earn to buy a home in Canada?
| City | Average home price in April | Average home price in May | Change in price | Income for April | Income for May | Change in income |
|---|---|---|---|---|---|---|
| Hamilton | $858,900 | $868,300 | $9,400 | $169,550 | $171,100 | $1,550 |
| Victoria | $866,700 | $874,300 | $7,600 | $170,950 | $172,180 | $1,230 |
| Ottawa | $644,800 | $651,300 | $6,500 | $131,000 | $132,060 | $1,060 |
| Calgary | $580,900 | $587,100 | $6,200 | $119,500 | $120,520 | $1,020 |
| Vancouver | $1,206,500 | $1,212,000 | $5,500 | $232,150 | $232,950 | $800 |
| Edmonton | $388,500 | $392,700 | $4,200 | $84,850 | $85,540 | $690 |
| Fredericton | $301,400 | $304,500 | $3,100 | $69,150 | $69,660 | $510 |
| Montreal | $531,300 | $534,300 | $3,000 | $110,550 | $111,010 | $460 |
| St. John’s | $338,400 | $340,900 | $2,500 | $75,820 | $76,210 | $390 |
| Regina | $318,500 | $320,000 | $1,500 | $72,240 | $72,450 | $210 |
| Winnipeg | $356,900 | $358,300 | $1,400 | $79,150 | $79,350 | $200 |
| Toronto | $1,123,300 | $1,117,400 | -$5,900 | $217,170 | $215,920 | -$1,250 |
| Halifax | $550,200 | $539,200 | -$11,000 | $113,960 | $111,890 | -$2,070 |
Please note April numbers have been revised from last month’s report, based on home price updates made by CREA this month.
How much mortgage can you afford? How much house can you buy?
Ratehub’s analysis breaks down regional affordability, leveraging average prices and mortgage rates to determine how they affect overall loan qualification. If you’re looking to break into the market, and you’re shopping around for a mortgage rate, you can crunch your own numbers with the MoneySense Affordability Calculator, which personalizes outputs based on income, existing bills and debt obligations, and overall debt ratios.
Overall, though, Canadians can expect some slight improvement in affordability in the months to come as the Bank of Canada (BoC) enters a rate-cutting cycle. It kicked off this new lower-rate era on June 5, when it lowered its benchmark interest rate by a quarter of a percentage point, from 5% to 4.75%. As this rate controls Canada’s prime rate—and, by extension, variable mortgage rate pricing—home owners with adjustable variable-rate mortgages will see their monthly payments immediately fall with every drop in the benchmark rate. For those with variable rates who are on a fixed payment schedule, slightly more of their monthly payments will go toward their principal mortgage balance.
Fixed-mortgage rate shoppers may also see some relief, as the bond market has reacted favourably to the BoC’s rate cut. The five-year government bond yield, which lenders largely use as a pricing floor for their five-year fixed mortgage rates, has dropped from around 3.6% to around 3.3%, as of June 19. Should the overall lower-rate sentiment continue, we could see fixed rates decrease even more.
Market analysts are expecting several more cuts before the BoC is through; there is a strong chance another downward move will come either at the central bank’s next rate announcement on July 24 or at the following announcement on September 4. This means Canada’s rate environment is set for a period of flux, which can pose a challenge for even the most confident rate shoppers. It’s more important than ever to connect with a mortgage professional, such as a mortgage broker, who can provide a fulsome view of Canada’s mortgage market and your options as a borrower.
Check this table to compare mortgage rates in Canada right now.
Read more about mortgage affordability:
- Where to buy real estate in Canada
- The complete guide for first-time home buyers in Canada
- Tools to calculate your mortgage payments and costs in Canada
- Mortgage refinance calculator
- Mortgage renewal calculator
This article was created by a MoneySense content partner.
This is an unpaid article that contains useful and relevant information. It was written by a content partner based on its expertise and edited by MoneySense.
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