Why are mortgages so expensive in Canada?

The monthly report provides a snapshot of how affordability is evolving in real time across Canada, based on real estate data from the Canadian Real Estate Association (CREA), changing mortgage rates and the mortgage stress test. It measures affordability by determining how much income is needed to qualify for a mortgage for the average-priced home in each market.

The October edition (updated monthly, so bookmark this page) reveals that affordability conditions improved in 12 of the 13 markets studied. This was mainly due to the fact that mortgage rates steadily decreased over the course of the month. The average five-year fixed mortgage rate used in the study fell to 4.86% from 5.04% in September. That resulted in the mortgage stress test rate—which adds 2% to the rate the borrower gets from their lender—coming in at 6.86%, down from 7.04% in September.

Since June, the BoC, which controls the cost of borrowing in Canada, has decreased its trend-setting rate from 5% to 3.75%. Its most recent rate cut was delivered on October 23, when it slashed rates by a half-percentage point. This in turn has lowered mortgage rates and re-incentivized home buyers, who have been awaiting cheaper rates before getting back into the market. 

Let’s take a look at how this is playing out in housing markets across Canada.

Housing affordability across Canada’s major cities

Check out the chart below to see how affordability changed between September and October in Canada’s main housing markets, based on the income required to qualify for a mortgage.

October 2024: How much do you need to earn to buy a home in Canada?

Canadian cities where affordability improved

Where in Canada is owning a home becoming more affordable?

Vancouver: Another month at the top

Vancouver remains uncontested as Canada’s priciest housing market, but buyers have been getting a bit of a break in recent months, largely due to lower rates. According to the Real Estate Board of Greater Vancouver, while home sales shot up nearly 32% year-over-year in October, the market remains very well supplied, which has kept prices from increasing in kind. As a result, the average Vancouver home price fell by $7,700 to $1,172,000 between September and October. As a result, a buyer there needs to earn $4,540 less than they did in the previous month to qualify for a mortgage.

Toronto: Supply outweighs recovering sales

October has also been a boom month for Toronto home sales, which after months of inaction came roaring back with a 44% year-over-year increase, according to the Toronto Regional Real Estate Board. Similarly to Vancouver, though, a built-up backlog of available homes for sale is keeping a tight lid on price growth. Between September and October, the city’s average home price dipped by $8,500 to $1,060,200. A buyer looking to purchase a property in the “Six” can now earn $4,380 less than they needed to in September.

Hamilton: Sales remain below the long-term trend

Hamilton maintains its spot in the top three for improved affordability, though there are clear signs that buying activity is rapidly heating. According to the Cornerstone Association of Realtors (formerly the Realtors Association of Hamilton-Burlington), home sales increased for the second consecutive month, as rate cuts incentivized local home buyers. However, the association points out that the market has softened more toward balanced conditions, as supply remains abundant. The average home price in Hamilton dropped by $10,600 month-over-month to $820,900, lowering the required income for local buyers by $4,060.

Canadian cities where affordability worsened

Just one Canadian city saw affordability worsen during the month of October:

Fredericton: A strong surge in sales

Fredericton was the only city that saw affordability worsen, with $1,890 more income required to purchase the average home. This was due to the significant month-over-month home price increase of $16,100, bringing the city’s average to $328,100. This was driven by a strong uptick in sales in October:year-over-year activity came in 12% higher across the province, leading to the same-sized increase in the benchmark home price. That was enough to offset the effects of lower mortgage rates, making it slightly tougher to buy a home in the east coast city.

How much mortgage can you afford? How much house can you buy?

This monthly report reflects how real estate market conditions, coupled with shifts in borrowing costs, impact overall affordability for home buyers. If you’re looking to get your first starter home, or perhaps move up to a larger property, crunching your own affordability numbers using the MoneySense mortgage affordability calculator is a great way to get an idea of what your monthly payments will be.

Will housing affordability continue to improve for Canadians?

It’s highly anticipated that Canadian mortgage rates will continue to trend downward,but it’s unclear by how much. Whether or not inflation continues to lower will be key in determining the BoC’s next steps. The latest inflation numbers for the month of October show the Consumer Price Index (CPI) rose to 2%, up from 1.6% in September. 

That increase has made market watchers uneasy, as any upward movement could delay further rate cuts from the BoC. However, as 2% is within the Bank’s target inflation range, another rate cut is still likely to come in its next announcement on December 11.

Economists are still undecided as to how big this rate cut could be. RBC economists have called for another 50-basis-point cut to come in December, as they believe inflation is “more likely to drift broadly lower in Canada.”

Meanwhile, Doug Porter, BMO chief economist and managing director of economics, thinks the BoC will play it safer with a quarter-point cut, as the “core” inflation measures—those most closely watched by the bank—did increase more than expected.

“This heavy result should take some more steam out of the call for another 50 basis point rate cut from the Bank of Canada in December,” he writes. 

Overall, Canadians can expect lower mortgage rates in the coming months, which will continue to ease affordability conditions, even as buyer demand grows. But inflation will tell just how low rates will go. 

Check this table to compare mortgage rates in Canada right now.

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Read more about mortgages:

• 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

About Penelope Graham

As director of content at Ratehub.ca, Penelope has over a decade of experience covering real estate, mortgage and personal finance. Her commentary is featured on BNN Bloomberg, CBC and The Globe and Mail.

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