Rising prices made it tougher to afford a home across Canada in January
Ratehub.ca January 2025 Affordability Report
Home affordability conditions worsened across Canada in January, as fixed mortgage rates stabilized and home prices rose in many of the nation’s major markets.
According to Ratehub.ca’s latest affordability report, the income required to purchase a home increased in 12 of 13 major Canadian markets. This marks the second month in a row where affordability worsened; prior to the November over December 2024 numbers, affordability was improving for a solid five months, leading to an overall uptick for the year as a whole.
The report calculates the required income to qualify for a mortgage on the average-priced home in each region, as well as the resulting monthly mortgage payment, based on changing mortgage rates, the mortgage stress test, and real estate data. The January calculations were crunched based on an average five-year fixed mortgage rate of 4.7% (unchanged from December) and corresponding mortgage stress test rate of 6.7%.
January 2025: How much did you need to earn to buy a home in Canada?
This report is for illustration purposes only. Data is based on a mortgage with a 10% 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. Average home prices are from the CREA MLS® Home Price Index (HPI). It’s important to note that these numbers will be different based on each person’s unique scenario. Ratehub.ca’s mortgage affordability calculator is a great tool to run your own numbers.
According to the report, the City of Hamilton saw home affordability decline the most – the average home price increased $20,900 between December and January to $819,500. As a result, the amount a home buyer would need to earn to get a mortgage on that home increased by $4,050. As well, the monthly mortgage payment they’d need to make rose by $110 ($1,320 per month) in January compared to December.
By contrast, Fredericton was the sole market to see affordability improve, with buyers needing to earn $450 less compared to the previous month. This was due to the average home price in the city softening by $2,300 month over month, to $338,800. Fredericton borrowers would also see their monthly mortgage payment decrease by $12 to $1,775.
Major markets such as Toronto and Vancouver, meanwhile, ranked fourth and ninth respectively; while home prices have been largely flat in January due to an increase in supply, sales rose on a monthly basis, which tightened prices slightly and impacted affordability.
The average home price in Toronto rose by $8,200, to a total of $1,070,100, which required buyers to earn $1,640 more to get a mortgage, and monthly mortgage payment increase of $43.
In Vancouver, the average home price rose by $1,500 to $1,173,000; that’s resulting in an increase to the required income of $300, and monthly mortgage payment increase of $8.
What’s to come for mortgage rates in early 2025?
Mortgage rates were largely unchanged in January; while the Bank of Canada cut its benchmark rate by a quarter of a percentage point on the 29th, variable rates were stable for the majority of the month. Fixed mortgage rates were also stagnant, as bond yields remained elevated around the 2.8% to 2.9% range. Fixed rates then dipped in the following weeks – largely due to bond investor reaction to US tariff threats – as bond yields plunged following the signing of Trump’s executive order.
Now, while the tariff dust has far from settled, a sense of unease has become the new normal in the bond market; yields have steadily risen from their initial slump, and haven’t budged on fresh news of potential aluminum and auto sector tariffs. That will put upward pressure on fixed mortgage rates, and lower the likelihood of discounts in the near future.
It’s also looking more likely that variable mortgage rates will be unchanged for the next month. The latest Canadian inflation numbers showed the Consumer Price Index rose to 1.9% in January, up from 1.8% in December. However, that number would have been even higher had it not been for the federal tax holiday, which was implemented between December 14 and February 15, on a number of consumer categories. Stripping out the tax break effect would have resulted in a year-over-year inflation increase of 2.6% – not what the Bank of Canada wants to see.
As a result, the central bank is now more likely to pause on cutting its benchmark overnight lending rate – which lenders use to price their prime rates and variable lending products – in its next rate announcement on March 12, after cutting it six consecutive times since June. The Bank’s next steps on rates will largely depend on future inflation and GDP reports – and whether US tariffs actually come to fruition.
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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.