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Home Prices Rebound, Taking Mortgage Payments Higher

concept illustration of housing prices increasing

The government stress test was an epic change that created serious drag for the housing industry. That drag has dissipated far quicker than many expected.

Case in point: home prices. Price appreciation is back. Canada’s average home price just surpassed $500,000 for the first time since June, according to the Canadian Real Estate Association.

But while rising home prices are great for existing homeowners, they’re not so great for aspiring homeowners. Mortgage servicing costs are once again creeping higher for new buyers.

The 5.3 percent year-over-year rise in the average Canadian home price to $515,500 in September means an extra $106 in mortgage payments for Canada’s average new homeowner. (That’s based on a 5-year fixed rate of 2.74 percent, a 20 percent down payment and 25-year amortization).

Excluding the arm-and-a-leg markets of Vancouver and Toronto, the average mortgage size still rose 3.3 percent. That’s $52 more each month compared to what the payment would have been had this theoretical buyer purchased last year.

Here’s a look at the average annual increase in monthly mortgage payments for select Canadian housing markets:

Avg. Home Prices 2009-2019.png

Vancouver is one region where home prices aren’t so resurgent. That’s been welcome news for buyers. By waiting and buying this year instead of last, new homebuyers with a standard 20%-down mortgage are saving nearly $600 a month.

Calgary’s also on sale, although to a lesser extent. With home prices down 2.3 percent, typical monthly payments are about $37 lower year-over-year.

Unfortunately for those in the Greater Toronto Area, housing affordability is still an oxymoron. A 5.8 percent jump in prices compared to last year means an extra $171 in mortgage payments each month.

Falling Interest Rates vs. Rising Home Prices

In 2019, tumbling fixed mortgage rates have offset much of the price impact on mortgage costs. The average high-ratio 5-year fixed rate fell 94 basis points from January to August 2019. That’s a monthly mortgage payment savings of $47.58 per $100,000 of mortgage—easily offsetting most price increases.

But with home prices expected to slowly climb in most regions—and the possibility that mortgage rates increase as well—the next few quarters could be a one-two punch for many first-time buyers. Albertans and Maritime buyers excepted.