Canada Housing Market

Despite a slight decrease in mortgage rates, prospective homebuyers in Canada continue to face worsening affordability conditions. In April, this trend was particularly evident in major cities such as Toronto, as reported by Ratehub.ca’s latest affordability analysis.

Affordability Analysis Highlights Increased Challenges

Ratehub.ca’s study reveals that qualifying for a mortgage became more difficult in 10 out of 13 major Canadian markets last month due to rising home prices. The analysis considered the minimum annual income required to purchase an average home in these cities, based on data from April 2024 and March 2024. Factors such as mortgage rates and the mortgage stress test were also taken into account.

source: It became tougher to buy a home in April, despite lower mortgage rates | Ratehub.ca

Mortgage Rates and Stress Test Overview

The study found that the average five-year fixed mortgage rate slightly decreased from 5.62% in March to 5.5% in April. Additionally, the average mortgage stress test rate remains high at 7.5%, requiring borrowers to demonstrate they can afford mortgage payments at a rate 2% higher than their lender’s offered rate.

Home Values vs. Interest Rates

James Laird, Co-CEO of Ratehub.ca, commented on the conflicting trends in home affordability: “The two key variables that impact home affordability, home values and interest rates, moved in opposite directions. Interest rates are down and home values are up in 12 out of 13 cities we looked at. The increase in home values was enough such that affordability worsened in 10 of 13 cities despite the rate drop.”

Detailed Findings for Toronto

In Toronto, the average home price increased from $1,113,600 in March 2024 to $1,128,100 in April 2024, marking a significant rise of $14,500. This was the second-highest increase in Canada, following Halifax. Consequently, the income required to afford an average home in Toronto rose from $217,500 in March to $218,050 in April.

CREA Insights on Market Conditions

The Canadian Real Estate Association (CREA) noted that an increase in listings has led to the most balanced market conditions at the national level since before the pandemic. James Mabey, Chair of CREA’s 2024-2025 Board of Directors, stated, “Mortgage rates are still high, and it remains difficult for a lot of people to break into the market. For those who can, it’s the first spring market in some time where they can shop around, take their time, and exercise some bargaining power.”

Future Outlook

According to Ratehub.ca, homebuyers are expected to return to the market once the Bank of Canada starts cutting its lending rate, which could happen as early as the next announcement on June 5, 2024.

Source: It became tougher to buy a home in April, despite lower mortgage rates | Ratehub.ca