Home affordability improved in September following summer rate cuts
September 2024 Ratehub.ca home affordability report
Those on the hunt for a home in September enjoyed a sweet spot in terms of affordability, as lower mortgage rates – combined with softening home prices and ample supply – took the pressure off buyers.
The latest affordability report data compiled by Ratehub.ca finds that affordability conditions improved in 11 of 13 major housing markets across the nation, as a third Bank of Canada rate cut led to a month-over-month drop in borrowing costs. Cumulatively, the central bank has slashed the cost of borrowing in Canada by 75 basis points since June, bringing its benchmark overnight lending rate – which sets the pricing for lenders’ prime rates and variable mortgage rates – down to 4.25% from its longstanding 5%.
The report calculates the minimum annual income required to buy an average home in some of Canada’s major cities based on September 2024 and August 2024 real estate data. It also illustrates how changing mortgage rates, stress test rates and real estate prices are impacting the income needed to buy a home.
Also read: National home sales rise in September following summer rate cuts
According to the data, the average five-year fixed mortgage rate dropped to 5.04% in September from 5.16% in August, resulting in the stress test easing to 7.04% from 7.16%.
September 2024: How much do you need to earn to buy a home in 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 September 2024 and August 2024. Average home prices are from the CREA MLS® Home Price Index (HPI).
Vancouver led the way in terms of improved affordability, largely due to the average home price falling by $16,200 on a monthly basis. While still the nation’s priciest market at $1,179,700, a -3.8% annual drop in sales, combined with a 12.8% increase in new listings, substantially cooled conditions in the west coast city. According to the Real Estate Board of Great Vancouver, the region had a sales-to-new-listings ratio of 30.1% in September, indicating a deep buyers’ market. As a result, home buyers there needed to earn $5,000 less than they did in August in order to qualify for the average priced home.
The City of Toronto ranked second due to similar market trends; while home sales ticked up 8.6% from 2023, they were roughly flat from August, while new listings surged by 35.5%. That’s put downward pressure on home prices in the 416, with the average falling by $13,500 on a monthly basis to $1,068,700, and resulting in a $4,300 drop in the required income.
The market that saw affordability worsen by the largest degree was St. John’s, Newfoundland, where tight inventory, coupled with brisk demand, pushed the average home price up by $9,500 from August, to $364,100. That means the average home buyer in the city will need to shell out an additional $1,000 to purchase the average priced home there.
Mortgage rates anticipated to fall further by end of 2024
The September edition of the affordability data captures the first three rate cuts implemented by the Bank of Canada, which were doled out between June and September in quarter-point increments.
However, recent inflation data, which reveals the Consumer Price Index (CPI) fell dramatically in September to 1.6%, has greatly increased the chance of a “jumbo” half-point cut to come from the central bank on October 23, and potentially a second in December. Should those two half-point rate cuts materialize, the benchmark overnight lending rate – which sets the pricing for lenders’ prime rates and, by extension, variable mortgage rates – would fall to 3.25%. That’s the lowest point for the benchmark rate since October 2022.
Variable mortgage rates will be re-priced in kind, offering considerable relief to existing variable-rate holders, as well as those shopping for a new mortgage rate, or coming up for renewal.
Fixed mortgage rates, while not directly impacted by the Bank of Canada’s rate direction, take their cues from fluctuations in the bond market, which tends to react favourably to central bank rate cuts.
Overall, Canadian borrowers can expect a lower interest rate environment over the next year, which will likely re-heat activity in the housing market; the Canadian Real Estate Association updated their forecast this month to account for lower interest rates, expecting sales to rise by 52% by the end of 2024 compared to 2023.
The next Bank of Canada announcement is scheduled for October 23, 2024.
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Penelope Graham, Head of Content
Penelope has over a decade of experience covering real estate, mortgage, and personal finance topics and her commentary on the housing market is featured on both national and local media outlets.