November home buying conditions improved due to falling rates

Steadily dropping interest rates over the course of the autumn have made it easier for Canadians to buy a home – and November was no exception, as borrowing conditions improved in most markets across the nation.

The latest Affordability Report compiled by Ratehub.ca shows that the income required to qualify for a mortgage on the average home decreased in 12 of 13 cities studied, reflecting the impact of the four Bank of Canada rate cuts implemented between June and October; during the timeframe the data was collected, the Overnight Lending Rate had dropped by 50 basis points between September and October. That added to a total of 125-points in decreases since June, which resulted in lower mortgage rates and an easier stress test for active buyers in the market.

A slightly lower mortgage stress test helped buyers get into the market

The study, which measures how affordability conditions are evolving on a monthly basis, uses national real estate data, mortgage rates, and the stress test rate to calculate how much income is needed to buy a home, based on local average home prices. In November, the average mortgage rate fell to 4.81% from the previous 4.86%, with the resulting mortgage stress test dropping to 6.81%.

However, while there was only a slight drop in rates, affordability improved again this month since most markets also saw home price declines.

According to the November findings, Halifax topped the list of housing markets where affordability improved the most. This was largely due to the average home price dropping by $11,500, to $527,700. As a result, the required income in the east coast city fell by $2,370.

According to the Nova Scotia Association of Realtors, while the region saw a 5.7% increase in sales in November, overall activity for the province remains 11.9% below the five-year average, which could account for softer price growth.

The top three were rounded out with Regina and Hamilton, where the required income dropped by $1,460 and $1,130, respectively.

Unlike previous months, where larger markets such as Toronto and Vancouver topped the rankings due to softer prices, these cities fell to the middle in terms of improved affordability. This is due to home sales and market conditions firming up considerably in the later autumn months, as rate cuts drove home buyer demand.

Also read: Toronto-area home sales surge 40% in October

November 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 November 2024 and October 2024. Average home prices are from the CREA MLS® Home Price Index (HPI).

Will home affordability continue to improve in 2025?

Decreasing mortgage rates gave buyers an affordability boost in the late autumn months of 2024, but the effect could be short-lived, as home sales are already starting to surge. The Canadian Real Estate Association (CREA) reported that national transactions increased 26% in November, following a similar 30% uptick in October. 

“October and November marked the start of the long-awaited rebound in resale housing activity, with the combination of lower borrowing costs and more properties to choose from coaxing buyers off the sidelines,” said James Mabey, CREA Chair, in the association’s release.

Meanwhile, the association points out that inventory is starting to tighten up, as the pace of newly-listed homes slows down. A total of 56,242 homes were brought to market over the course of the month, marking just a 2.4% year-over-year increase, and down 0.5% from October.

This drop in new listings and increase in sales has made for a more competitive marketplace, says CREA, as the sales-to-new-listings (SNLR) ratio, which measures how competitive market conditions are, increased to 59.2% in November from 57.3% in October. While that’s still considered largely balanced, that’s starting to re-approach sellers’ market territory; CREA considers a ratio between 45 - 65% to indicate a balanced market, with below and above that threshold reflecting buyers’ and sellers’ markets, respectively. For perspective, the SNLR has hovered in the 52 - 53% range between April and September, with the long term average at 55%.

“Not only were sales up again, but with market conditions now starting to tighten up,  November also saw prices move materially higher at the national level for the first time in almost a year and a half,” said Shaun Cathcart, CREA’s Senior Economist. “Normally we might expect this market rebound to take a pause before resuming in the spring; however, the Bank’s latest 50-basis point cut together with a loosening of mortgage rules could mean a more active winter market than normal.”

Several more rate cuts expected in 2025

Interest rates are also expected to drop several more times in 2025, though the Bank of Canada has stated that the pace and frequency will now slow, as the central bank has achieved its inflation and upper neutral rate targets. While it’s still likely that the BoC may pass down another quarter-point cut in its next announcement on January 29th, 2025, this could be derailed if the next inflation report comes out stronger than expected. Economists and markets will be keeping a close eye on any new data in the coming weeks, which will offer clues as to where rates will trend next.

Also read:

• Ratehub.ca’s 2025 mortgage predictions
• National home sales rise 26% in October due to rate cuts
• Bank of Canada cuts target interest rate by 0.5% in December announcement
• Bank of Canada rate cuts lead to improved home affordability in October