Impact 'has been evident across the nation' according to new report
The Bank of Canada’s decision to lower interest rates for July 2024 has made it easier for Canadians to buy a new home as prices have become more affordable, says Ratehub’s July 2024 Affordability Report.
The report stated that the central bank’s decision to chop down the benchmark interest rates for June and July 2024 – from 5% to 4.5% – has had a profound impact on the country’s real estate industry as it enabled Canadians to borrow money to finance their plan to acquire a new home. The rate cut, according to Ratehub, made prices improve in all 13 markets in Canada, for the first time since January of this year.
Based on July data, the average five-year fixed mortgage rate dropped to 5.29%, compared to 5.47% in June, with the mortgage stress test lowering to 7.29% in kind.
“As a result, the income required to qualify for a mortgage fell by more than $5,000 in Canada’s most expensive housing markets,” the report noted.
Toronto leads the way on improving affordability
Based on the numbers, Toronto saw the biggest improvement across the country in housing affordability, with $5,410 less income required to purchase the average home compared to in June, the Ratehub report stated. A decline of $13,300 in the average Toronto home price has been recorded, bringing the price of a housing unit down to $1,097,300, according to the report.
The Ratehub report stated that in the Greater Toronto Area (GTA), market sales suffered from a continuous slump in recent months because of pocket-bursting interest rates, with prospective buyers waiting for further rate cuts before entering the market.
Meanwhile, conditions played out similarly in Vancouver, where the average price dropped by $9,400 on a monthly basis, to $1,197,700, the report stated. This means that a homebuyer needs $5,020 less income to qualify for a mortgage in the west coast city.
Hamilton, on the other hand, bags the third place in terms of the improvement in house pricing as the region’s average price fell by $6,400 to $843,500 in July. This means a buyer in the city needs $3,510 less in income to purchase a home, compared to the previous month, the report explained.
“The cities that saw the smallest improvements in affordability all already boast an average price under $500,000, indicating activity has remained stable and less impacted by interest rate changes,” it added.
Is a homebuying surge on the way in the months ahead?
While prices are improving, Ratehub sees no rush for potential homebuyers to go into a frenzy.
“In general, it’s been a slow spring and summer market for Canada’s most expensive cities, as buyers – who have hit their affordability ceilings – wait for interest rates to wind back down,” the report said. “The latest national data from the Canadian Real Estate Association (CREA) show national home sales were roughly flat between June and July (-0.7%), indicating buyers aren’t yet incentivized to rush in. Home prices have also been flat or have fallen in most regions, with Canada’s average dipping -0.2% year over year to $667,317.”
Nevertheless, the Bank of Canada is expected to significantly trim its overnight rate by 2025, meaning “lazy summer sales” could soon be in the rearview mirror, according to CREA chairperson James Mabey.
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