Borrowers are pausing purchases, waiting for rates to hit the affordability sweet spot
Canada’s housing market may remain in a holding pattern until mortgage rates drop to the magic number of 3%, according to industry experts. Despite some recent rate declines, current borrowing costs still leave many prospective homebuyers on the sidelines.
The average lowest five-year fixed mortgage rate, the most popular product among Canadian buyers, currently sits at 3.74%. But for a meaningful surge in housing activity, rates likely need to fall further.
“One of the reasons that we were never really expecting a big rebound in housing into the spring was because that level of borrowing cost isn’t low enough to trigger a lot of activity,” Robert Kavcic, senior economist at BMO Capital Markets, told the Financial Post.
About 68% of potential homebuyers say current borrowing rates remain a hurdle, according to a recent BMO survey. Nearly 40% of survey respondents said they would only consider purchasing or refinancing if rates fell to 3% or lower.
“Three percent (3%) mortgage rates is a level that would actually make sense… from an affordability perspective, even from an investment perspective,” Kavcic explained. “But at 4% borrowing costs, things are still very stretched and don’t make a whole lot of sense for a lot of people.”
Andy Hill, mortgage broker and cofounder of EveryRate.ca, echoed that point, calling 3% the “magic number” to reignite buyer activity.
“The real estate market will ignite, we will start to see a lot more transactions, when we have three per cent,” Hill said. He noted, however, that recent tariff-related volatility has added uncertainty.
Even as rates inch downward, homebuyer budgets remain tight. According to an EveryRate.ca survey from late last year, 67% of Canadians say the most they are comfortable paying for housing each month is $1,749. Among those earning at least $100,000 a year, 42% reported they couldn’t afford mortgage payments above the national average.
By comparison, Canada Mortgage and Housing Corporation (CMHC) data shows the current average monthly mortgage payment is $1,829, and the Canadian Real Estate Association (CREA) reports the national average home price at $678,331.
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Hill added that the average total mortgage Canadians feel comfortable carrying is about $350,000, typically over 25 years. Even with a 30-year amortization, which reduces monthly payments to roughly $1,780 at current rates, many buyers still face affordability barriers, especially in high-cost markets like Vancouver, where starter homes top $800,000.
“A mortgage payment with a regular down payment for a first-time homebuyer of less than 20% down means they’re looking at a crazy difference in terms of what they feel comfortable paying every month and the reality,” Hill said.
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