Ontario Housing Affordability 2020: A Year Nobody Predicted

This article was written in December 2020 and describes the market as it stood then. We updated it in October 2026 to correct figures and sources. Everything below is as of December 2020 unless it says otherwise. For what came next, see Ontario Housing Affordability 2021.

In early 2020, the open question in Ontario real estate was how high prices would climb. By March, it was whether anyone would be allowed to leave their house. By December, sales had set records and the original question seemed almost quaint. This is what happened to housing affordability in Ontario during the strangest year in modern memory.

A Tale of Two Halves

The 2020 market split into two periods. The first half was defined by shock: a pandemic, a lockdown, and a sharp slowdown in in-person real estate activity from mid-March. The second half was defined by a buying surge, fuelled by very low mortgage rates, pent-up demand, and a shift in what many people wanted from their homes.

Nationally, 2020 saw a record 551,392 sales through the MLS Systems, up 12.6% from 2019. December sales were up 47.2% from December 2019, the largest year-over-year monthly increase in 11 years.4

March: Three Rate Cuts

Three Rate Cuts in Under Four Weeks

The Bank of Canada began March 2020 with its overnight rate at 1.75%. By the end of the month it was 0.25%, which the Bank treated as its effective lower bound. Three cuts, 50 basis points each:123

• March 4: 1.75% down to 1.25%
• March 13: 1.25% down to 0.75% (an unscheduled decision)
• March 27: 0.75% down to 0.25% (also unscheduled)

At its December 9 decision, the Bank held the rate at 0.25% and said it would keep it there until economic slack is absorbed, so that the 2% inflation target is sustainably achieved.5 Mortgage rates moved lower as well, though they do not track the overnight rate one for one.

Why Lower Rates Did Not Mean Much More Borrowing Power

It is tempting to assume that a one-point drop in mortgage rates lifts the amount a buyer can borrow. Under the federal stress test it largely did not. Uninsured borrowers had to qualify at the greater of their contract rate plus 2 percentage points or a minimum qualifying rate. OSFI's 2021 letter on the rule describes that minimum as then being tied to the Bank of Canada's five-year benchmark rate, which stood at 4.79% in May 2021.6 With contract rates below about 2.8% (4.79% less the 2-point buffer), the benchmark, not the contract rate, set the qualifying rate. A lower contract rate cut the monthly payment, but it barely changed the amount a lender would approve.

The Second-Half Surge

Demand did not stay down. Virtual tours and digital offer processes became normal, and by the end of the year sales were far above the year before. The type of demand shifted too. Many buyers wanted more space, and suburban and smaller-city markets drew attention that downtown condos did not.

CREA's December figures show how tight the market became. The national sales-to-new-listings ratio was 77.4%, against a long-term average of 54.2%. Inventory was 2.1 months of supply nationally, the lowest on record, and 29 Ontario markets had less than one month.4

Affordability Snapshot: December 2020

These are the year-over-year price gains CREA reported for December 2020. CREA gives the Ontario markets as ranges. It also notes that the national average is heavily influenced by sales in Greater Vancouver and the GTA, and that leaving those two out would take almost $130,000 off it.4 Several Ontario markets outside the GTA saw faster price gains than the GTA did, while rates fell and the borrowing limit stayed close to where it was.

An Illustrative Buyer

This is an illustrative example with assumed numbers. It is not a real client and not a rate quote.

Take a Hamilton household earning $95,000 with $60,000 saved for a down payment. To keep the arithmetic visible, assume a lender lets housing costs use 35% of gross income, that property tax and heat come to $450 a month, a 25-year amortization, and that the stress test qualifying rate is 4.79%. Lenders' actual limits and calculations differ.

That leaves about $2,320 a month for principal and interest, which supports a mortgage of roughly $407,000 at the 4.79% qualifying rate. With the $60,000 down payment, the buyer could look at homes up to about $467,000.

Now the contract rate. On a $400,000 mortgage, an assumed 2.69% contract rate gives a payment of about $1,830 a month, and an assumed 1.89% gives about $1,670, roughly $160 less. But because the qualifying rate stays at 4.79%, the $407,000 limit does not move. The lower rate eases the payment once the buyer qualifies. It does not stretch the budget.

Prices matter more. If the buyer had been watching a $600,000 home that rose 22% (inside CREA's 20% to 25% range for Hamilton), it would cost $732,000, and the mortgage needed would grow from $540,000 to $672,000. A payment about $160 a month lower on a given loan did not close a gap that large.

That is the central lesson of 2020: lower rates reduced what a given loan cost each month, but they did little to raise what a buyer could borrow, and rising prices outran both.

* This case is illustrative. No real client is described.

Looking Ahead From December 2020

At the end of 2020, inventory and rates were both at record lows, and the Bank of Canada had said it would hold its rate until slack was absorbed. No one could say how long that would last. Our advice at the time is advice we would still give: know your budget, test it at a higher rate than the one you are offered, and have your financing ready before you start looking.

The buyers who did well in 2020 were not the ones who timed the market perfectly. They were the ones who knew their budget, had their financing ready, and could move decisively.