Lower interest rates, house prices are starting to cut costs for buyers – mostly in this one province

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Lower home prices and declining interest rates on new fixed-rate mortgages are starting to translate into affordability gains in some Canadian cities, a Globe analysis has found.

While many Canadian cities have seen sizable home price drops over much of 2022 and 2023, soaring borrowing costs over that period have, until recently, wiped out any affordability gains for homebuyers. But with lenders lowering fixed rates on new five-year mortgages over the past two months, that’s beginning to change.

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The Globe and Mail compared the mortgage payments homebuyers would have to carry if they purchased an average-priced home in their local market today to what they’d have paid if they’d bought in February, 2022, right before the Bank of Canada began its rate-hiking campaign. In a handful of housing markets, those payments would be lower, the numbers show.

The analysis shows it currently takes a home price decline of around 25 per cent or more from February two years ago to produce a mortgage payment decrease of more than $100 a month.

But the good news for homebuyers is limited. The gains are typically modest and concentrated in mid-sized cities and smaller communities in Ontario, which saw the sharpest housing corrections since early 2022.

And in the absence of sizable increases to the housing supply, any affordability gains are likely to be short-lived, with buyer demand bound to quickly push up prices, CIBC Capital Markets deputy chief economist Benjamin Tal said, commenting on The Globe’s analysis.

“What we’re seeing now is a situation in which we are planting the seeds for some increasing prices down the road,” Mr. Tal said.

The Globe calculated mortgage payments in more than 20 markets tracked by the Canadian Real Estate Association. The analysis relies on estimates of the price of a typical home in February, 2022, and in December, 2023, the latest available data.

To calculate mortgage payments at the peak of the pandemic housing boom, The Globe used a rate of 2.94 per cent. That was the lowest nationally available five-year fixed rate for purchases that don’t require mortgage default insurance in mid-February of 2022, according to MortgageLogic.news.

For an estimate of mortgage payments for today’s buyers, The Globe used a 5.29 per cent rate, the current lowest five-year fixed rate. The calculations assume buyers have a 20-per-cent down payment and will take 25 years to pay off the mortgage.

Those steep price declines are mostly found in Ontario. In Cambridge, for example, where prices have dropped 28 per cent from their peak, a buyer today would likely face monthly mortgage payments around $300 lower for a typical home. Buyers will find similar conditions in London, Waterloo, Hamilton and Oakville.

The province also dominates the ranking of markets where prices have fallen by around 20 per cent, which currently produces mortgage payments that are roughly equal to those buyers faced two years ago, before the central bank began raising rates. Chilliwack, B.C., is the only city outside of Ontario among those analyzed to also exhibit these conditions.

In much of the rest of Canada, buyers are still contending with higher mortgage payments. In Halifax, for example, the monthly payment on a typical home is still roughly $400 higher, even though home prices are 6 per cent lower.

In Calgary, where prices are up 10 per cent since February, 2022, a new buyer would have to shoulder nearly $1,200 more a month in mortgage payments for an average home.

But for many buyers, strong wage growth over the past two years should help soften the financial pinch, said mortgage analyst Robert McLister, who runs MortgageLogic.news.

“You would find that the total affordability is not as bad as it would seem in some places if you factor in that,” Mr. McLister said.

And lower home prices mean down payments can go further to reduce the size of a mortgage and its monthly instalments.

With borrowing costs still elevated, Mr. Tal expects only a modest revival in housing activity this spring. But the affordability gains realized so far are so little that even small price increases would erase them in the absence of further interest-rate declines, he said.