Canada housing affordability and market trends

Canada housing affordability

It’s no secret that buying a home in Canada has become increasingly difficult over the past decades. This has been fuelled further by a housing boom during the pandemic, when borrowing rates fell to a record low of 0.25%. Housing demand – and real estate prices – soared as a result, while the end of lockdown measures caused inflation to spike, peaking at a 40-year high of 8.1% in June 2022.

This prompted a rapid 10-part series of rate hikes from the Bank of Canada, which has a mandate to keep inflation below a 2% target. These took place between March 2022 and July 2023, raising the overall cost of borrowing for Canadians.

Fast forward to today, and it’s a very different economic climate. Inflation is now 2.4% (as of September 2025), and the Bank of Canada is poised to resume cutting rates, after implementing seven in a row between June 2024 and March 2025, which brought its overnight lending rate back down to 2.75%. Most recently, it cut its rate again in its September announcement, bringing it to 2.5%.

Policymakers emphasized they will continue monitoring the effects of tariffs, weakening exports, and consumer demand before making further moves.

Bond markets have priced in the rate cut ahead of the announcement. The Government of Canada’s five-year bond yield has held steady in the 2.5-2.6% range since mid-October, prompting some lenders to lower their fixed mortgage offerings. The best five-year fixed insured rate now sits at 3.79%, a level not seen since this past spring. 

Although borrowing costs are lower than a year ago, housing market activity is showing only modest momentum. While August saw a pickup in sales, ongoing trade uncertainty, rising inventory levels, and concerns over job security and economic slowdown are still causing some buyers to remain cautious.

What changed in Canada’s housing affordability in October?

Canada’s housing market offered a rare dose of relief in September, as home affordability improved in 11 of 13 major cities. According to Ratehub.ca’s latest affordability report, softer home prices were the main reason buyers could qualify for more modest mortgages, while borrowing costs stayed relatively steady. 

Mortgage rates barely changed month over month, with the average five-year fixed mortgage rate dipping slightly from 4.49% to 4.47%, and the mortgage stress test easing by a small margin to 6.47%. These minor changes were overshadowed by price drops in most cities, giving affordability a noticeable lift.

Toronto saw the biggest improvement — the average home price fell by $9,400, which lowered the qualifying income by $2,130 and reduced monthly payments by $58. Vancouver followed with an $8,300 price drop, cutting the required income by $2,000. Similar gains were seen in Calgary, Regina, and Victoria, where buyers needed roughly $900 to $1,100 less income to qualify compared to August. Only Montreal and Halifax saw affordability worsen slightly as home prices ticked upward.

Canada housing market update for October 2025

Canada’s housing market stayed strong through September, even as activity eased slightly after a busy summer. According to the Canadian Real Estate Association (CREA), national home sales dipped 1.7% from August, marking the first monthly decline since spring. Despite that, sales were still 5.2% higher than last year, making this the most active September since 2021. The slowdown came mainly from fewer transactions in Vancouver, Calgary, Edmonton, Ottawa, and Montreal, partially offset by gains in the Greater Toronto Area and Winnipeg.  Market balance improved further in September, with new listings edging down 0.8% and the sales-to-new-listings ratio slipping slightly to 50.7%, signalling equilibrium between buyers and sellers. CREA noted that a ratio between 45% and 65% typically reflects a balanced market. Inventory levels remained steady at 4.4 months of supply, the lowest since January and below the long-term average of five months. By the end of September, there were 199,772 homes listed for sale — about 7.5% more than a year earlier — aligning with historical norms.  After sharp corrections earlier in 2025, home prices have stabilized. The MLS® Home Price Index (HPI) slipped only 0.1% month-over-month and was down 3.4% year-over-year, while the national average sale price rose 0.7% from September 2024 to $676,154.

Read more: Canadian home sales hit a four-year September high

*National home data sales data for May is not yet available, as home sales data for a given month is not published until the following month. May's data will become available in mid-June upon publication of home sales figures by CREA.  

What’s the difference between benchmark and average home prices?

When reporting on housing price trends, real estate boards use two different metrics: the average home price, and the benchmark home price. These two measures provide different insights into price trends, and how the market is evolving in both the short and long term.

• The average home price is calculated by adding the sale price of all the homes sold over a period of time, and then divided by the number of transactions. This provides the average price per unit. However, because the mix of the home sold can fluctuate significantly from month to month or by year, average home price trends can be more volatile, and do not always offer an accurate portrayal of the most common home sale in a given market.
• A benchmark home price is based on an index that’s been developed based on specific housing features, and how they change in terms of demand and value to home buyers over time. This provides a more accurate picture of the most typical type of home sold in a specific market, and that has changed over time. An example of a benchmark home price in the MLS Home Price Index created and used by the Canadian Real Estate Association (CREA). This is based on more than 15 years of CREA’s proprietary MLS System data, as well as statistical models to determine the “typical” home type and value per market.

What is the sales-to-new‑listings ratio (SNLR)?

The “SNLR” stands for sales-to-new-listings ratio. It is a measure used by real estate boards to gauge the level of competition within a given housing market, and whether or not it's considered to be a “balanced” market, or more favourable to buyers or sellers. The SNLR is calculated by dividing the number of home sales by the number of newly-listed homes brought to market during a period of time. For example, if there were 500 home sales in a specific city during the month of March, and 750 homes brought to market, the SNLR would be:

(500/750)*100 = an SNLR of 66%

According to the Canadian Real Estate Association:

• A ratio of 45 - 65% is considered a balanced market. This means there is a sufficient supply of homes available for sale to meet home buyer demand. These conditions help keep home price growth stable, and buyers are less likely to encounter excessive multi-offer situations that can drive prices higher.
  
  
• A ratio below 45% is considered to be a buyers’ market. This means there is an oversupply of available homes for sale and not enough buyer demand. Home prices tend to decrease in buyers’ markets as homes often sell for less than they’re listed, and multi-offer situations are less common.
  
  
• A ratio above 65% is considered to be a sellers’ market. This defines a market where there are too few homes available for sale to satisfy buyer demand, and competition to purchase listings is fierce. Home prices are driven higher in sellers’ markets as buyers must often engage in bidding wars on the same property.

How the stress test impacts mortgage qualification

The mortgage stress test is a mortgage qualification requirement that ensures borrowers could still afford to make their payments in the case that interest rates should rise. Mortgage applicants must prove they could still afford their mortgage under the higher of the following two scenarios:

• The mortgage rate they receive from their lender, plus 2%.
  
• The Minimum Qualifying Rate (MQR), which is currently 5.25%. However, given there are no contract mortgage rates currently available at 3.25% or lower, this threshold is obsolete, and will remain so unless Canadian mortgage rates considerably decrease. 

For example, let’s say you get a mortgage rate of 5% from your mortgage lender. You would actually need to have the sufficient borrowing criteria – such as income, debt ratios, and down payment size, etc. – to qualify for a mortgage at 7%. 

The mortgage stress test also reduces the size of mortgage borrowers will qualify for. This is because when you have a higher mortgage rate, it results in a higher monthly payment to cover the additional cost of borrowing.

For example, let’s say a borrower has a household income of $100,000, and buys a home priced at $454,161, with a down payment of $50,000. However, because the borrower must qualify at a rate of 7.64%, the purchase price they’d actually qualify for would be just $387,670 – a difference of $66,691.

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