Rate cuts improved home affordability across Canada in July
July 2024 Affordability Report
Penelope Graham, Director of Content
It became a bit easier for Canadians to buy a home in July, as rate cuts have effectively lowered borrowing costs.
The impact of the Bank of Canada’s June and July rate decreases, which chopped the benchmark interest rate from 5% to 4.5%, was evident across the nation, with affordability improving in all 13 markets – for the first time since January – studied 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 July 2024 and June 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.
According to the July data, the average five-year fixed mortgage rate dropped to 5.29%, compared to 5.47% in June, with the mortgage stress test lowering to 7.29% in kind. As a result, the income required to qualify for a mortgage fell by more than $5,000 in Canada’s most expensive housing markets.
July 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 July 2024 and June 2024. Average home prices are from the CREA MLS® Home Price Index (HPI).
Toronto led the way in terms of the most improved affordability, with $5,410 less income required to purchase the average home, compared to in June. This is reflected by a large decline of $13,300 in the average Toronto home price, bringing it to $1,097,300. Sales have been sluggish in the Greater Toronto Area in recent months, as prospective home buyers await further rate cuts before entering the market.
Conditions played out similarly in Vancouver, where the average price dropped by $9,400 on a monthly basis, to $1,197,700. This resulted in borrowers needing $5,020 less income to qualify for a mortgage in the west coast city.
The City of Hamilton rounds out the top three, as the region’s average price fell by $6,400 to $843,500 in July. That means a buyer in the “Hammer” needs $3,510 less in income to purchase a home, compared to the previous month.
The cities that saw the smallest improvements in affordability all already boast an average price under $500,000, indicating activity has remained stable and less impacted by interest rate changes.
Market to heat along with rate cut chances
In general, it’s been a slow spring and summer market for Canada’s most expensive cities, as buyers – who have hit their affordability ceilings – wait for interest rates to wind back down. The latest national data from the Canadian Real Estate Association (CREA) show national home sales were roughly flat between June and July (-0.7%), indicating buyers aren’t yet incentivized to rush in. Home prices have also been flat or have fallen in most regions, with Canada’s average dipping -0.2% year over year to $667,317.
However, as the Bank of Canada is expected to cut its benchmark Overnight Lending Rate into the 3 - 2.5% range by 2025, lazy summer sales could soon be in the rearview mirror, says CREA Chair James Mabey.
“While it wasn’t apparent in the July housing data from across Canada, the stage is increasingly being set for the return of a more active housing market,” he says. “At this point, many markets have a healthier amount of choice for buyers than has been the case in recent years, but the days of the slower and more relaxed house hunting experience may be somewhat numbered.”
The next Bank of Canada rate announcement is scheduled for September 4, 2024.
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Penelope Graham, Director 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.