In July, buying your own home in most major Canadian cities became a little easier. However, the main role was played not by mortgage rates, but by a decline in real estate prices. In Montreal, the average cost of housing fell by $6,100 over the month, and the annual income required to qualify for a mortgage dropped by almost $1,500.
According to Ratehub.ca’s July report, housing affordability improved in 10 of Canada’s 13 largest markets. This is a notable turnaround compared with June, when the situation, on the contrary, worsened in 11 of 13 cities.
The main reason was a decline in property prices—also observed in 10 cities. Mortgage rates changed much less and had virtually no impact on the overall picture.
The average five-year fixed mortgage rate at Canada’s five largest banks fell from 4.57% in June to 4.54% in July. The rate used in the mortgage borrower stress test decreased from 6.57% to 6.54%.
According to Ratehub.ca’s mortgage director in Quebec, Philippe Simard, it was precisely the movement in real estate prices that became the main factor behind July’s improvement. The slight drop in interest rates was not enough to significantly change buyers’ financial burden.
Montreal: savings amounted to thousands of dollars
For Montreal residents, July brought a small but tangible improvement.
The average property price fell from $596,300 to $590,200. Thus, housing became cheaper on average by $6,100 in just one month.
At the same time, the income that, according to Ratehub.ca’s calculations, a buyer needs to qualify for a mortgage on an average property also decreased:
- $129,640;
- $128,160;
- $1,480 per year.
The estimated monthly mortgage payment also decreased—from $3,084 to $3,043, i.e., by $41. Over a year, this yields potential savings of about $492.
The difference does not look huge against the backdrop of housing prices; however, for families that are at the limit of their budget, even a few dozen dollars a month can matter.
Where did housing become the most affordable?
The most noticeable improvement was recorded in Vancouver. The average property price there dropped by $10,300 at once, to $1,088,800. The required income fell by $2,540—from $226,400 to $223,860. The monthly mortgage payment became smaller by about $70.
Hamilton ranked second for improved affordability: the average home price fell by $7,600, and the required income by $1,850.
In Toronto, property became cheaper by an average of $6,200, and the required income decreased by $1,680. Monthly mortgage payments in Hamilton and Toronto fell by $51 and $47, respectively.
It didn’t get easier in all cities
Three markets went against the overall trend—Ottawa, Fredericton, and St. John’s.
In Ottawa, the income required to buy a home increased by $20. In Fredericton, the increase was $430, and in St. John’s—$590.
St. John’s showed the most noticeable deterioration. The average property price there rose by $4,200, and the monthly mortgage payment increased by $15.
At the same time, the changes remain relatively small so far and do not indicate a sharp turning point in the market situation.
What will happen to rates?
Buyers still have to take two factors into account at once—real estate prices and the cost of borrowing.
In July, the Bank of Canada kept the key rate at 2.25%. This means relative stability for those using a variable-rate mortgage. The next key-rate decision at that time was scheduled for September 2.
Fixed mortgage rates depend primarily on the yields of Government of Canada bonds and can move independently of the central bank’s decision.
In July, the best five-year fixed rate for an insured mortgage was about 4.09%. At the same time, the market still had offers below 4% for shorter terms: about 3.89% for two years and 3.94% for three years.
Buyers are advised not to take the first mortgage they come across
Ratehub.ca specialists recommend that potential buyers compare offers from different lenders. This is especially relevant for those who are planning to buy a home in the near future or are approaching the renewal of an existing mortgage.
Even a small difference in the interest rate on a large mortgage loan can noticeably change the monthly payment and the total amount of interest over several years.
Another tool is mortgage pre-approval (pre-approval). In some cases, it allows you to lock in the offered rate for up to 120 days. This gives the buyer some protection if borrowing costs start to rise during the home search period.
However, experts advise looking not only at the advertised rate. It is important to consider the down payment, loan term, monthly payment, additional fees, and your own financial capabilities.
Main takeaway
July’s improvement in housing affordability is good news for buyers, but it is still too early to talk about solving the housing problem. In Montreal, the average property price fell, but housing still requires a very high income: about $128,000 a year to qualify for a mortgage under the study’s scenario.
Therefore, the current improvement can more likely be called a small breather than a fundamental change in the market situation.
