In July, mortgage rates dropped from 5.47% to 5.29%, making the mortgage “stress test” easier to pass.
By the report from Ratehub.ca, Toronto led the way in improving affordability, requiring $5,410 less income to purchase the average home compared to June. This was driven by a significant $13,300 decline in the average home price, now at $1,097,300. Sales have been slow in the Greater Toronto Area recently, with potential buyers holding off for further rate cuts.
Similarly, Vancouver saw its average home price drop by $9,400 to $1,197,700, reducing the income needed for a mortgage by $5,020.
In Hamilton, the average home price fell by $6,400 to $843,500, resulting in a $3,510 decrease in required income compared to the previous month.
Meanwhile, cities with average home prices under $500,000 saw smaller improvements in affordability, suggesting stability less affected by interest rate changes.
Market Set to Heat Up Alongside Rate Cut Prospects
Canada’s most expensive cities have experienced a sluggish spring and summer market, as buyers, who have reached their affordability limits, are holding off until interest rates decrease. According to the latest data from the Canadian Real Estate Association (CREA), national home sales remained nearly flat between June and July, dipping just -0.7%. Home prices have also stayed flat or declined in most regions, with Canada’s average home price down -0.2% year over year to $667,317.
However, as the Bank of Canada is expected to reduce its benchmark Overnight Lending Rate to between 3% and 2.5% by 2025, the slow summer sales might soon be a thing of the past, according to CREA Chair James Mabey.
“While it wasn’t evident in the July housing data from across Canada, the stage is increasingly being set for the return of a more active housing market,” Mabey says. “Currently, many markets offer a healthier amount of choice for buyers compared to recent years, but the slower, more relaxed house hunting experience may soon be coming to an end.”
The next Bank of Canada rate announcement is scheduled for September 4, 2024.
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