Why are mortgages so expensive in Canada?

It’s not surprising that buyers across Canada are hesitant to buy a home right now. Even though the blanket tariffs aren’t yet in force, the constantly changing rules around them has already harmed markets and stoked fears of a Canadian recession. That’s hardly reassuring for someone considering a home purchase if they’re worried about their job and their savings.

However, there’s an upside for buyers continuing to shop for a home. Affordability has largely improved across Canada, mainly due to dropping mortgage rates, which helped offset rising prices in some cities.

The February edition of Ratehub.ca’s Home Affordability Report found the required income to qualify for a mortgage on the average-priced home decreased in eight of 13 major markets.The analysis, which is based on month-over-month real estate data, as well as changing mortgage and stress test rates, uses required income to measure overall affordability, and how it recently changed. 

Mortgage rates were down due to the Bank of Canada’s sixth rate cut, which occurred on January 29th (the central bank’s seventh, which was passed down on March 12, will be reflected in the next month’s data), as well as dropping bond yields, which caused fixed mortgage rates to lower. As a result, the average five-year fixed mortgage rate used in the study dropped to 4.55% from 4.7% in January, resulting in the mortgage stress test falling by the same degree to 6.55%.

Let’s take a look at how this affects Canadian home buyers across Canada.

Housing affordability across Canada’s major cities

The chart below shows how affordability evolved between January 2025 and February 2025, in Canada’s main housing markets, based on the income required to qualify for a mortgage.

To see more data on these two charts, scroll the chart left to right with your fingers or press shift, as you use scroll wheel on your mouse to read.

February 2025: Home affordability report

Canadian cities where affordability improved

Where in Canada is owning a home becoming more affordable?

Hamilton: Bearing the correction brunt

In its latest data report, CREA pointed out that while sales fell in two-thirds of all markets, Ontario’s Greater Golden Horseshoe was hit especially hard. That’s quite apparent in Hamilton, where transactions dropped 35% year over year in February, according to the Realtors’ Association of Hamilton-Burlington. That resulted in the city’s average home price decreasing by $6,900, to $812,600; combined with lower mortgage rates, that cooled the required income by $3,450. The average monthly mortgage payment in Hamilton also dropped by $100 compared to January, to $4,194.

Toronto: A spring marked by slowing sales

Tariff fears have also taken a bite out of demand within Ontario’s priciest housing market Toronto. Transactions plunged over 27% in Toronto in February, according to the Toronto Regional Real Estate Board (TRREB). While home prices held firm—the city’s average ticked up by $3,800 month over month to $1,073,900 – mortgage rates had fallen by a large enough degree to move the affordability dial; the required income dropped by $2,090 in Toronto, along with the average monthly mortgage payment; it fell $64 to $5,543.

Vancouver: Below the seasonal average

Early spring home sales have also dropped in Vancouver, down 11.7% year over year, and sitting a whopping 28.9% below the 10-year seasonal average, according to the Greater Vancouver Realtors. While transactions have corrected to a lesser degree than what we’re seeing in Ontario, tariff concerns have also shaken west-coast buyers, especially as Vancouver real estate remains the most expensive in Canada. Home prices still rose by an average of $10,700 in February, to $1,174,400. Again, lower mortgage rates led to the average monthly payment dipping slightly, by $36, to $6,117, and the required income dropping by $1,000.

Canadian cities where affordability worsened

Just five of 13 cities saw affordability worsen in February. These were all markets in Canada where buyers are less constrained by high home prices—all with an average below $600,000 —and with a trend of increasing sales and shrinking supply.

Winnipeg: Into sellers’ market territory

Unlike Canada’s largest cities, the Winnipeg housing market heated up in February. According to the Winnipeg data compiled by CREA, home sales increased 13.4% year over year, while listings declined by 6.6%. That combination pushed up prices. The city’s average rose $10,500 month over month to $373,700. As a result, the required income needed to qualify for a mortgage in Winnipeg increased by $1,070. The average monthly mortgage payment also jumped by $26, to $1,929.

Montreal: Reaching pre-pandemic conditions

Montreal continues to experience robust real estate demand; according to the Quebec Professional Association of Real Estate Brokers (QPAREB), February sales were “comparable to the two strong years preceding the pandemic,” with a 7% year-over-year increase, announced the organization. Overall, it remains a strong sellers market, with bidding wars for single-family homes up 15%. That resulted in a $12,400 increase in the averaged Montreal home price, to $562,300, and led to the required income rising by $950.

Edmonton: Sales continue to rise

The Greater Edmonton Area (GEA) housing market kicked off the year with robust home sales, and that trend continued into February, with the Realtor’s Association of Edmonton (RAE) reporting a 14.3% increase in transactions, also outstripping new listings.

Prices have steadily climbed rising $9,600 month over month to $421,800, resulting in the required monthly income increasing by $760.

How much mortgage can you afford? How much house can you buy?

Ratehub.ca’s monthly affordability study breaks down how buying conditions change in in 13 of Canada’s major housing markets. Affordability is measured by the amount of income a buyer would need to qualify for a mortgage on the average priced home in their city. This is calculated by using regional real estate data, mortgage rates and the mortgage stress test rate. The analysis also tracks the resulting monthly mortgage payment, and how that changes in each city on a monthly basis. If you’re house hunting and wondering how your affordability stacks up, run your own numbers using the MoneySense mortgage affordability calculator.

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What’s next for Canadian mortgage rates in 2025?

The outlook for Canadian real estate remains up in the air as financial markets have struggled in the wake of tariff uncertainty. This has put downward pressure on mortgage rates in the short term. However, it’s becoming less likely that Canada’s central bank will dramatically slash rates to counter the effect of tariffs. 

Back in January and early February this year, during the early days of the mounting trade war, economist consensus largely called for the BoC to aggressively cut interest rates in the case of a tariff-induced recession. 

However, the latest hot inflation numbers may have put those cutting plans on pause. The February Consumer Price Index (CPI) came in stronger than expected at 2.6%, which would usually prompt the BoC to pause or end its rate cutting cycle. 

Further, BoC Governor Tiff Macklem said hin his speech that monetary policy (hiking or cutting interest rates) cannot counter the effects of a trade war on its own. He added, that the central bank would focus on maintaining Canada’s inflation picture. None of this bodes well for future rate cuts. 

The path forward for borrowers, unfortunately, will continue to hinge on the form of tariffs—if and when they come into force—and how long they may last for.

Read more about mortgages:

• Where to buy real estate in Canada
• The complete guide for first-time home buyers in Canada
• Tools to calculate your mortgage payments and costs in Canada
• Mortgage refinance calculator
• Mortgage renewal calculator

About Penelope Graham

As director of content at Ratehub.ca, Penelope has over a decade of experience covering real estate, mortgage and personal finance. Her commentary is featured on BNN Bloomberg, CBC and The Globe and Mail.

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