Home affordability improved in June as interest rates dip

A slight dip in interest rates led to easier home buying conditions for some Canadians in June, as affordability improved in nearly half of the nation’s major markets.

The latest affordability report from Ratehub.ca, which tracks the month-over-month change in the required income to purchase a house across Canada, found this measure lowered in six of the 13 markets studied. This is up from just two markets in May.

The report is based on June 2024 and May 2024 real estate data and illustrates how changing mortgage rates, stress test rates and real estate prices are impacting the income needed to buy a home. 

While mortgage rates were largely flat on a monthly basis, the average mortgage stress test decreased slightly to 7.47%, from 7.49%, with the average five-year fixed mortgage rate coming in at 5.47%. Fixed mortgage rates softened slightly in June as bond yields dropped in response to a quarter-point rate cut from the Bank of Canada on the 5th, with growing market optimism that more cuts are to come in the coming months.

That, combined with softening home prices, led to improved affordability, even among Canada’s priciest cities.

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

In contrast to May, when it was actually the most-improved market affordability-wise, Halifax saw the most significant increase in the required income in June, with $1,560 more needed to buy the average home. This is based on the average Halifax home price rising $9,600 on a monthly basis, to $548,800. While home sales have trended lower in Halifax, the market has been volatile as the number of new listings remains well below the long-term average, which has put upward pressure on prices.

Edmonton was second in terms of eroding affordability, requiring an additional $1,380 in income, based on home prices jumping $8,400 between May and June. This is due to robust home sales in the city, which has supported strong price growth.

Meanwhile, the two cities that saw the greatest improvement in affordability were Hamilton and Toronto.

Hamilton saw the most improvement to affordability with $3,550 less income required to purchase the average home. This comes as no surprise since the average home price in Hamilton dropped by a whopping $18,400 month-over-month.

Steep borrowing costs and poor overall affordability, meanwhile, have restricted market activity in Toronto, which has started to put downward pressure on home prices – but the average remains above the $1-million mark, and out of reach for many would-be buyers.

Affordability could improve further this summer

It remains to be seen whether borrowing costs will lower once again following the next Bank of Canada announcement on July 24; markets are currently anticipating another quarter-point cut at that time, or in September, depending on how inflation and the economy fares in the short-term. However, the latest numbers from the Canadian Real Estate Association reveal a slight uptick in buying activity between May and June, which could indicate that buyers are responding to the slight dip in interest rates.

Also read:

• Rate cuts lead to small June jump for national home sales
• US inflation falls to 3% in June: Here’s what that means for the Bank of Canada
• Toronto home sales fall in June despite rate cut
• Rising home prices made it harder to buy a home in May
• Bank of Canada cuts target interest rate by 0.25% in June 2024 announcement