Housing affordability improved in October as home prices chill

Home prices have been softening in markets across Canada in recent months, but steep mortgage rates prevented any widespread improvement in housing affordability – until now.

According to the latest affordability data compiled by Ratehub.ca, home prices have indeed decreased by a large enough margin to ease qualification for many buyers in October, with affordability improving in eight of the 10 markets studied. This is despite the fact that mortgage rates rose slightly on a month-over-month basis, with the mortgage stress test hitting a new average high of 8.47%.

“Mortgage rates continued to increase, pushing the stress test to another record high,” says James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender.

“Home values decreased in eight out of the 10 cities we looked at, such that the amount of income required to qualify for the average home in those markets decreased from September to October.”

Ontario markets see largest price declines

To gauge housing affordability conditions, Ratehub.ca calculated the minimum annual income required to buy an average home in some of Canada’s major cities based on October 2023 and September 2023 real estate data. The report illustrates how changing mortgage rates, stress test rates and real estate prices are impacting the income needed to buy a home. 

The data references the latest numbers from the Canadian Real Estate Association that show the national average for home prices essentially flattened from September, marking just a 1.8% annual increase at $656,625, following a -5.6% decline in month-over-month sales.

This was largely influenced by declines in some of Ontario’s major markets, with the average Toronto home price dipping by $23,400 and Hamilton – the leading city in terms of improving affordability – by $25,100. As a result, home buyers in those cities require roughly $4,000 less to qualify for a mortgage for a home at the average price of $1,103,600 and $829,100, respectively.

“Hamilton saw the most improvement, with $4,990 less income needed to purchase a home. Toronto was close behind with $4,650 less income required. Both these cities saw big home price declines with a $25,100 drop for Hamilton and $23,400 for Toronto,” says Laird.

October 2023 Home Affordability Report

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 October 2023 and September 2023. Average home prices are from the CREA MLS® Home Price Index (HPI).

The only cities to buck the trend of improved affordability were Halifax and Calgary, where average home prices rose by $5,300 and $2,100 – however, the increased income required to purchase a home in these cities was minimal, at $1,000 and $350 more, respectively.

“Halifax and Calgary were the two outliers, with $1,000 more income required to purchase the average home in Halifax and $350 in Calgary,” Laird adds. “These cities saw home prices increase.”

Vancouver home buyers – while still contending with the most expensive real estate in the country – saw some slight relief, as the average price in the city softened by $6,800, leading to a drop in required income of $1,440.

Future affordability trends hinge on Bank of Canada

Whether or not affordability conditions continue to improve in the coming months will depend largely on the Bank of Canada, which is expected to leave its trend-setting interest rate unchanged in its upcoming December 6 announcement before cutting rates in the second half of 2024. However, lower interest rates are likely to spur sidelined homebuyers back into the market, which could drive home prices higher once again.

As CREA’s Chief Economist put it in the association’s October report, “The rebound in activity this past spring was an example of what we might see next year. It will really come down to whether the Bank of Canada has to increase interest rates again, or whether by next March it’s simply a matter of how soon we’ll see the Bank make its first cut.”

Also read:

• Canadian real estate conditions drop to 10-year low in October
• Think mortgage rates will drop? The argument for getting a variable rate now
• High mortgage rates spooked GTA home buyers in October
• Bank of Canada Council split on latest rate hold
• Home affordability declined in September as stress test hit new high
• Bank of Canada holds target interest rate at 5% in October