Affordability edges up for Canadian homebuyers as rates and prices ease

Canadian homebuyers caught a rare break in July as housing affordability improved in 12 of 13 major markets, according to Ratehub.ca’s latest Affordability Report. The shift was driven by a combination of falling home prices and lower mortgage rates, offering a brief window of relief for buyers battered by years of surging costs and tightening credit.

The average five-year fixed mortgage rate dropped to 4.4% from 4.8% in June, while the mortgage stress test rate eased to 6.4%. These changes meant households needed less income to qualify for a mortgage, with Toronto, Vancouver, and Hamilton seeing the most significant gains. In Toronto, the required income to purchase the average home fell by $4,040 to $200,800, while Vancouver buyers needed $3,100 less than the previous month.

However, not all markets shared in the relief. St. John’s stood out as the exception, where buyers needed an extra $710 in income due to a $6,600 jump in average home prices. 

The improvement in affordability comes after a turbulent period for Canadian real estate. The pandemic-era housing boom, fueled by record-low borrowing rates of 0.25%, sent demand and prices soaring. When inflation spiked to a 40-year high of 8.1% in June 2022, the Bank of Canada responded with a rapid series of rate hikes, pushing its overnight rate to 5% by mid-2023. This cooled the market but also made mortgages harder to qualify for.

Since then, the economic climate has shifted. Inflation dropped to 1.9% in August 2025, and the Bank of Canada has cut its rate to 2.5% after seven reductions since June 2024. Bond yields have also declined, prompting lenders to trim fixed mortgage offerings. The best five-year fixed insured rate now sits at 3.94%, according to Ratehub.ca.

The mortgage stress test remains a key barrier for many would-be buyers. Borrowers must prove they can afford payments at their contract rate plus 2%, or the minimum qualifying rate of 5.25%—whichever is higher. In practice, most are qualifying at rates well above 6%. 

Looking ahead, July’s gains may be fleeting. Fixed mortgage rates began rising again in August as bond yields ticked up, pushing the lowest insured five-year rate to 4.04%. Still, with inflation cooling, the Bank of Canada may have room for further cuts, which could ease borrowing costs if bond yields respond.

CMP

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