August brought welcome news for Canadian homebuyers as recent rate cuts have significantly improved home affordability. The Bank of Canada’s interest rate reductions is making it easier for Canadians to enter the housing market.
Significant Affordability Gains in Major Cities
Toronto led the way with the most significant improvement in affordability. Prospective buyers in Toronto now need $5,410 less in annual income to purchase the average home compared to June. This improvement is reflected in a notable $13,300 drop in the average home price, bringing it down to $1,097,300. Despite these gains, sales in the Greater Toronto Area have remained sluggish as many potential buyers are waiting for further rate cuts before making a move.
Vancouver also saw a considerable improvement in affordability. The average home price in the city dropped by $9,400, bringing it to $1,197,700. As a result, homebuyers in Vancouver now need $5,020 less in income to qualify for a mortgage.
Hamilton rounds out the top three cities with the most significant affordability gains. The average home price in Hamilton decreased by $6,400, bringing it down to $843,500. This reduction means that a buyer in Hamilton now needs $3,510 less in income to purchase a home compared to the previous month.
Smaller Affordability Improvements in More Affordable Markets
Cities with average home prices under $500,000 experienced smaller improvements in affordability. These markets have remained more stable and less impacted by interest rate changes, reflecting steady activity despite the broader economic shifts. These changes resulted in a decrease of over $5,000 in the income required to qualify for a mortgage in Canada’s most expensive housing markets.
Market Poised to Heat Up with Further Rate Cuts
While Canada’s most expensive cities have experienced a slow spring and summer housing market, this could soon change. Many buyers have hit their affordability limits and are waiting for further interest rate reductions before entering the market. Recent national data from the Canadian Real Estate Association (CREA) indicates that national home sales were relatively flat between June and August, decreasing slightly by 0.7%. Home prices have also remained stable or have declined in most regions, with Canada’s average home price dipping by 0.2% year over year to $667,317.
However, the outlook for the housing market may shift as the Bank of Canada is expected to continue cutting its benchmark Overnight Lending Rate, potentially bringing it into the 3% to 2.5% range by 2025. According to CREA Chair James Mabey, the current calm in the market may not last much longer.
“While it wasn’t apparent in the August housing data from across Canada, the stage is increasingly being set for the return of a more active housing market,” Mabey says. “At this point, many markets have a healthier amount of choice for buyers than has been the case in recent years, but the days of the slower and more relaxed house hunting experience may be somewhat numbered.”
The next Bank of Canada rate announcement is scheduled for September 4, 2024, and many are anticipating further action that could stimulate a more active housing market.
Ready to Take Advantage of Improved Affordability?
As borrowing costs continue to decline and the potential for further rate cuts looms, now is an excellent time to explore your homebuying options. At Pegasus Mortgage Lending, we’re here to help you navigate the evolving market with personalized mortgage solutions that fit your needs. Whether you’re a first-time buyer or looking to upgrade your current home, our team of experts can guide you every step of the way. Contact Pegasus Mortgage Lending today to learn how we can help you secure the best mortgage rates and make the most of the current market conditions. Your dream home is closer than you think!
