Homebuyers in 12 of Canada’s 13 major markets needed to earn more to purchase a home in January, as fixed mortgage rates stabilized and home prices rose, according to Ratehub.ca’s latest affordability report.
“We did not really see any change with the mortgage rate itself. It was all concentrated on the price side,” report author Penelope Graham said, explaining the decline in affordability, which is measured by the required annual income to qualify for a mortgage on the local average-priced home.
Hamilton experienced the sharpest decline in home affordability, with the average home price rising by $20,900 from December to January, reaching just over $819,000.
Accordingly, buyers would need to earn $4,050 more a year to qualify for a mortgage and their monthly mortgage payment increased by $110, which amounts to an extra $1,320 annually.
Graham said that while Hamilton’s market has slowed, more sales of expensive homes, such as detached houses, have pushed up average home prices.
It’s different from the conditions in other major markets such as Toronto and Vancouver, which ranked fourth and ninth respectively in changes to home affordability. Home prices there remained mostly stable in January due to an increase in housing supply, but a monthly increase in home sales has put some upward pressure on prices, the report said.
In Toronto, the average price of a home increased by $8,200, bringing the total to $1.07 million. This led to a $1,640 increase in the income buyers need to qualify for a mortgage, and their monthly mortgage payments grew by $43.
Meanwhile, in Vancouver, the average home price went up by $1,500, reaching $1.173 million. Homebuyers would need an additional $300 in income and see their monthly mortgage payment increase by $8.
Thanks to the decline in the average home price by $2,300 to $338,800, Fredericton was the only market where affordability improved. The amount a homebuyer would need to earn to get a mortgage decreased by $450 and their monthly mortgage payment decreased by $12, to $1,775.
As the recent mortgage reforms increased the $1 million price cap for insured mortgages to $1.5 million, Ratehub.ca shifted their methodology of calculation: the down payment has been updated to 10 per cent from 20 per cent. To ensure a fair month-to-month comparison, they recalculated the December figures using the new methodology.
“I do think especially when in that price range between $1 million and $1.5 million, there’s going to be new demand from a new buyer group who otherwise wouldn’t be able to participate,” Graham said.
While the Bank of Canada delivered its sixth consecutive interest rate cut at the end of January, mortgage rates were largely unchanged. Fixed mortgage rates held steady as bond yields remained elevated, around 2.8 to 2.9 per cent.
It is difficult to predict whether home affordability will improve, but current market conditions present a favourable opportunity for buyers, with ample inventory available and interest rates projected to decline in 2025, said Shawn Zigelstein, broker and team leader at Royal LePage Your Community.
But the looming threat of U.S. tariffs has made the outlook for mortgage rates and the market uncertain, both Zigelstein and Graham said.
“Because even if home prices are falling and if mortgage rates are falling, if people lose their jobs and they are not able to make home purchases, we will see sales drop,” Graham said.
After the tariff announcements, bond yields initially dropped sharply, then gradually increased and stabilized despite fresh news of potential aluminum and auto sector tariffs. This is expected to drive fixed mortgage rates higher and reduce the likelihood of discounts in the near future, according to the report.
Graham said the Bank of Canada will likely pause on rate cuts in March, given that inflation rose slightly in December and would have been higher without the federal government’s tax holiday.
However, threats of tariffs could also “justify the Bank of Canada adjusting interest rates quicker and maybe a little bit more aggressively from fears of a potential recession coming into place,” Zigelstein said.
“I think what people will really get from the next announcement is perhaps additional hints as to how they’re feeling about the impacts of tariffs and what they might be planning for the remainder of the year in terms of interest rates,” Graham said.
