Canada Housing Market

As we step into 2024, Canadians are witnessing a promising shift in the real estate landscape, presenting a potentially brighter horizon for aspiring homeowners. The beginning of the year has brought with it a gentle breeze of change, as both home prices and mortgage rates have seen a welcome softening in January. This shift, albeit temporary, offers a glimmer of hope for those dreaming of purchasing their own home.

A recent study by Ratehub.ca, examining the minimum annual income required to buy an average home in major Canadian cities, sheds light on this positive trend. The study spans 13 markets and reveals a universal decrease in the income needed to secure a home. “The income required to purchase a home decreased in every city we looked at,” states James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender. This improvement in affordability, even in cities where home prices have risen, is primarily due to the reduction in interest rates, which has sufficiently countered price increases.

This analysis draws on national real estate data from January 2024 and December 2023, offering insights into how fluctuations in mortgage rates, the stress test, and real estate prices are influencing the financial thresholds for homebuyers.

A Lower Stress-Test Hurdle

Key to understanding this shift is the mortgage stress test, which requires borrowers to qualify at a rate 2% higher than their contract rate. This has been a significant barrier as mortgage rates climbed over the past two years. However, January saw the stress test rate drop to 7.71% from 8.16% in December, reflective of an average mortgage rate of 5.71%. This easing of the stress test requirements marks a pivotal moment for prospective buyers, making home financing more accessible.

Home Prices: A Downward Trend in Several Markets

The chill in home prices across nearly half of the analyzed markets has also played a crucial role in enhancing affordability. Vancouver leads the way with a notable decrease in the average home price, requiring significantly less income for potential buyers. Toronto follows, with a slight dip in home prices easing the income requirements for home purchases.

Market Dynamics: A Balancing Act

Despite these positive signs, the early data from 2024 suggests a warming market that may challenge this newfound affordability. A significant increase in sales, coupled with a tight supply, hints at a market gradually leaning back towards sellers’ favor. This dynamic underscores the complexity of the real estate market, where various factors interplay to influence affordability.

Moving Forward: A Cautious Optimism

As the year unfolds, the real estate market’s trajectory remains to be seen. The current ease in home affordability, driven by softer mortgage rates and relaxed prices, offers a window of opportunity for many Canadians. However, the potential for a heating market underscores the importance of vigilant observation and strategic planning for those looking to step into homeownership.

This evolving scenario represents a critical juncture in Canada’s real estate narrative. While the immediate outlook offers encouraging signs for potential buyers, the market’s inherent volatility calls for informed decision-making and careful consideration of future trends. As we navigate through 2024, staying abreast of these changes will be key to making the dream of homeownership a reality for many across Canada.

Data in the chart is based on a mortgage with 20% down payment, 25-year amortization, $4,000 annual property taxes and $150 monthly heating. Mortgage rates are the average of the Big Five Banks’ 5-year fixed rates in January 2024 and December 2023. Average home prices are from the CREA MLS® Home Price Index (HPI).

Source: Home affordability improved across Canada as mortgage stress test eased in January | Ratehub.ca