Ontario Housing Affordability 2023: Stuck in Place

2023 was a year of high borrowing costs and low housing activity in Canada and Ontario. The Bank of Canada raised its policy rate three times, from 4.25% to 5.00%, and then held it.1 National home sales fell 11.1% from 2022 to 443,511 units.7 Rents rose sharply, and rental vacancy reached a new low in CMHC's survey.9

The Bank of Canada's 2023 rate path

The Bank of Canada sets a target for the overnight rate. Lenders price fixed and variable mortgages with reference to that rate and to bond yields, so changes in the policy rate do not map directly onto the rate on any one mortgage.

In its January 2023 decision, the Bank raised the rate to 4.50% and said it expected to hold the rate at that level while it assessed the effect of the increases already made. The Bank said it was prepared to raise the rate further if needed.2 The Bank raised the rate again in June, when it said monetary policy was not restrictive enough to bring supply and demand back into balance and to return inflation to its 2% target.4 It raised the rate to 5.00% in July.5 It held the rate at 5.00% in December.6

This article does not quote current mortgage rates. Lender rates change often and depend on the borrower, the product and the lender. Ask a licensed mortgage professional for a current quote.

Home sales in 2023

The Canadian Real Estate Association (CREA) reported 443,511 home sales across Canada in 2023, a decline of 11.1% from 2022.7 That is a national total. It does not measure Ontario or the GTA alone, and this article does not restate regional sales figures.

Prices

Benchmark prices for Ontario markets are published monthly by CREA and by local real estate boards. This article does not restate price levels, because the figures were not re-checked against those published series for this revision. Check the latest published series before relying on any price figure.

The rental market

CMHC's Rental Market Report, published in January 2024, found that the national vacancy rate for purpose-built rental apartments was 1.5% in October 2023, a new low in CMHC's survey.9 In the Greater Toronto Area, the vacancy rate for purpose-built rental apartments fell from 1.7% in 2022 to 1.5% in 2023. The growth in the average two-bedroom rent in the GTA was 8.7%, the largest increase CMHC had recorded since 2000.9 The average two-bedroom purpose-built rent in the Toronto census metropolitan area was $1,961 in 2023.9

Immigration is one factor behind rental demand. IRCC reported that Canada admitted 471,808 new permanent residents in 2023.8 That figure does not include temporary residents, who also add to demand for housing. Population growth in 2023 was driven by both groups.

The mortgage qualifying rate

For uninsured mortgages, OSFI requires lenders to qualify borrowers at the greater of the contract rate plus 2 percentage points, or 5.25%.10 As an example, a contract rate of 5.49% is tested at 7.49%. Insured mortgages have their own rules. Check the current rules with a licensed mortgage professional before you plan a purchase.

What a borrower can qualify for depends on income, existing debts, the down payment and the lender's own policies. This article does not show a maximum purchase price for any household.

OAC. Rates subject to change. Conditions apply.

Renewing a mortgage

A five-year term that started in 2019 comes up for renewal in 2024. A five-year term that started in early 2020 comes up in 2025. The change in payment depends on the rate at renewal and the remaining amortization.

The table below is arithmetic, not a quote. It shows the monthly payment on $100,000 borrowed over 25 years, compounded semi-annually, at three rates chosen to illustrate the change.

Applied to a $400,000 balance renewing from 2.69% to 5.49%, the same arithmetic gives a monthly payment of about $1,830 before the change and about $2,440 after it, an increase of about $610 a month. The figures ignore fees, insurance and any change in amortization.

Many people renewing a mortgage compare offers from their current lender with offers from other lenders. Renewal terms vary, so compare the full cost of each option and speak with a licensed mortgage professional before you accept one.

How renewals affect households will depend on where interest rates go. No one, including the Bank of Canada and lenders, can say that with certainty.

OAC. Rates subject to change. Conditions apply.