Lower rates improved housing affordability across most of Canada in 2024

In terms of real estate affordability, 2024 was a mixed bag. The year started off with stagnant buying demand, as borrowers were constrained by high mortgage rates and home prices. Fresh off the Bank of Canada’s rate hiking cycle – which rapidly increased the benchmark cost of borrowing over the course of 2022 and 2023 – many would-be buyers had put their purchasing plans on hold. 

Conditions shifted rapidly in the second half of the year, however once the central bank started cutting its trend-setting rate in June, lowering it from 5% down to 3.25% by December. Both variable and fixed mortgage rates decreased in kind, which helped improve borrowing conditions for those trying to get into the market.

Lower mortgage rates offset higher prices in 2024

As a result, affordability improved in nine of 13 of Canada’s major housing markets in 2024, according to analysis by Ratehub.ca. The study calculates the minimum annual income required to buy an average home in some of Canada’s major cities, based on 2024 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 largest contributing factor here was lower mortgage rates; while home prices ended the year on a more expensive note in 11 of the 13 studied cities, borrowing costs fell by a large enough margin to offset higher prices. Over the 12-month period, the average five-year fixed mortgage rate used in the study decreased from 5.71% to 4.99%, with a corresponding drop in the mortgage stress test from 7.71% to 6.99%.

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

Overall, 2024 saw a big improvement compared to 2023, where affordability worsened in all 10 of the cities studied at the time. The income required last year ranged from an extra $5,610 in Winnipeg all the way up to an additional $24,600 in Vancouver.

In contrast, Toronto saw the most improvement in 2024, with $12,400 less income required to purchase the average home. This was based on a combination of lower interest rates and the average home price decreasing from $1,065,300 in January to $1,061,900 by December.

Vancouver followed close behind with $12,100 less income, following a fairly small year-to-date increase in the average price, from $1,166,800 to $1,171,500. Chilly buying conditions in the first half of the year, along with a build-up of supply, helped keep a lid on price growth in these markets, even after activity picked up after June due to rate cuts.

While nine cities saw improvement in affordability, four saw affordability worsen. Fredericton saw it the worst with $6,130 more income required to purchase the average home. This was due to the significant home price increase of $54,000, the highest of all the cities.

Will housing affordability continue to improve in 2025?

After several years of built-up demand, it’s largely expected that home sales will rebound in 2025, as there are a few rate cuts still expected from the Bank of Canada. While there’s plenty of economic uncertainty in store – namely, whether threatened 25% trade tariffs will indeed come into effect – economists believe our central bank will focus on maintaining their 2% inflation target and supporting the economy. Currently, big bank economists are calling for the BoC’s benchmark rate to lower to a range between 2.5 - 2.75% later this year, which could come in the form of between two to four additional cuts. That would further lower variable mortgage rates in Canada, and improve affordability for those borrowers.

The trajectory is less clear for fixed mortgage rates, however, as these rates take their cues from the bond market. Bond investors are very reactive to economic data and perceived uncertainty, and bond yields – which lenders use as a floor for their fixed rates – have remained high in recent months, preventing much downward movement in rate pricing. Given there’s plenty of potential market upheaval to come this year, fixed mortgage rates may not move much lower than their current levels.

Overall, though, rate relief will spur an uptick in home buying, according to the Canadian Real Estate Association (CREA), which released an updated forecast for the 2025 and 2026 real estate market.

 “The assumption remains that the combination of two and a half years of pent-up demand and lower borrowing costs, together with the usual burst of spring listings will lead to a rebound in market activity across the country in 2025,” CREA states. “There was a good preview of what that might look like during the fourth quarter of 2024.”

CREA calls for around 532,704 homes to be sold in 2025, which would be an 8.6% increase from 2024, to be followed by an additional 4.5% increase to 556,662 transactions in 2026.

The national average home price is forecasted to rise by 4.7% year over year to $722,221 in 2025, roughly flat from the previous call of 4.4%, before increasing by another 3.3% to $746,379 in 2026.

“Outside of British Columbia and Ontario, these kinds of price gains and some even larger ones are already well underway,” CREA states.

Also read:

• Canadian real estate ends 2024 with chilly sales
• 2024 marked a transitionary year for GTA real estate
• November home buying conditions improved due to falling rates
• Bank of Canada cuts target interest rate by 0.5% in December announcement
• What is the Bank of Canada Overnight Lending Rate?
• What is the prime rate in Canada?