Dropping mortgage rates made it easier to buy a home in February

Dropping mortgage rates helped improve affordability for most home buyers across Canada in February, despite real estate prices ticking up in a number of major markets.

The latest Home Affordability Report from Ratehub.ca finds that affordability conditions improved in eight of 13 markets studied last month, a considerable turnaround from the January edition, where 12 cities saw buying conditions worsen.

The main factor was lower borrowing costs; the data captures the Bank of Canada’s sixth rate cut, which occurred on January 29th, which caused variable mortgage rates to decrease. Fixed mortgage rates also fell over the course of February, as bond yields plunged in reaction to US tariff fears. (The central bank’s seventh consecutive cut, which occurred on March 12, will be reflected in next month’s data.)

The study uses changing mortgage and stress test rates, as well as real estate prices, to monitor how affordability conditions change on a month-over-month basis. Affordability is measured by determining the level of income a home buyer would need to earn to qualify for a mortgage on the average-priced home in their city, as well as the corresponding monthly mortgage payments. The February data uses an average five-year fixed mortgage rate of 4.55% (and stress test rate of 6.55%), compared to 4.7 and 6.7% in January.

February 2025: How much did you need to earn to buy a home in Canada?

This report is for illustration purposes only. Data is based on a mortgage with a 10% 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 and February 2025. Average home prices are from the CREA MLS® Home Price Index (HPI). Please note that Vancouver’s January home price has been updated in this report to reflect CREA’s most recently reported numbers.

The looming threat of tariffs has had a chilling effect on sales in some of Canada’s priciest housing markets – this led to a drop in price in the top-ranked city, and a greater improvement in affordability compared to other markets in the study.

The City of Hamilton saw the most significant decrease in February, with $3,450 less income required to purchase the average home. This was largely due to the average home price dropping by $6,900 to $812,600. The resulting monthly mortgage payment also decreased by $100, to $4,194.

This was followed by the City of Toronto, which saw the required income drop by $2,090, though the average home price increased by $3,800, to $1,073,900. The average monthly mortgage payment also dropped by $64, to $5,543.

According to the Canadian Real Estate Association (CREA), the Greater Golden Horseshoe and Greater Toronto regions both experienced the steepest declines in sales in February, as would-be buyers stepped back from the market due to tariff uncertainty. Sales plunged by 35% in the Hamilton-Burlington region, and by 27.5% in the GTA last month.

Vancouver ranked third, with the required income reduced by $1,000, though $10,700 was added to the average home price, bringing it to $1,174,400. The average monthly mortgage payment dipped slightly by $36, to $6,117. While Vancouver home sales also cooled last month, the decrease was to a lesser degree than in Toronto and Hamilton, dropping 11.7%.

Tariff fears are greatly impacting Canada’s housing market

Overall, national home sales decreased by 10% last month, mainly due to tariff uncertainty and buyer hesitation, reports the Canadian Real Estate Board (CREA).

​​“The moment tariffs were first announced on January 20, a gap opened between home sales recorded this year and last,” said Shaun Cathcart, CREA’s Senior Economist. “This trend continued to widen throughout February, leading to a significant, but hardly surprising, drop in monthly activity. This is already being reflected in renewed price softness, particularly in Ontario’s Greater Golden Horseshoe region.”

Lower prices and mortgage rates could be in store

Should this continue, it could lead to softer real estate prices in the coming months. While the interest rate outlook – along with everything else – remains uncertain until markets receive clarity on the form and longevity of threatened tariffs – it’s largely expected the Bank of Canada will cut its target interest rates two or three more times this year.

However, the latest inflation report, which showed the Consumer Price Index shot back up to 2.6%, could prompt the central bank to hold its rate in its upcoming announcement on April 16 – which could put the brakes on improving housing affordability.

Also read:

• Housing affordability in Canada
• Canadian home sales plunge 10% in February due to tariff fears
• Tariff uncertainty takes a bite out of Toronto February home sales
• Bank of Canada cuts target interest rate by 0.25% in March announcement
• Rising home prices made it tougher to afford a home across Canada in January