Ontario Housing Affordability 2024: Rate Cuts Arrive, But Is It Enough?

After two years of the highest interest rates since the early 2000s, the Bank of Canada changed direction in 2024. Five rate cuts between June and December brought the overnight rate from 5.00% to 3.25%, including two jumbo 50-basis-point cuts in October and December. The federal government also introduced the most significant mortgage rule changes in years: 30-year amortizations for first-time buyers and a raised insured mortgage cap of $1.5 million. On paper, everything is moving in the right direction. On the ground, affordability remains a challenge.21

The Year Rates Finally Turned

For the first five months of 2024, the Bank of Canada held the overnight rate at 5.00%. Inflation was moderating but still above the 2% target. The housing market was quiet, with sales volumes well below historical norms. By spring, the case for cuts was building: GDP growth was slowing, unemployment was ticking up, and the per-capita economy was contracting.43

The June 5 cut, the first reduction since the overnight rate hit 5.00% in July 2023, was broadly expected but still felt like a turning point. The Bank was finally easing. The response was cautious. Buyers who had been waiting on the sidelines did not flood back in. They watched and waited for more.21

Five Cuts in Seven Months

The two jumbo cuts in Q4 were notable. The Bank does not typically move in 50-basis-point increments during easing cycles. The move signalled that the Bank was worried about the economy overshooting to the downside: that it had held rates too high for too long and needed to catch up. By year-end, the prime rate had dropped from 7.20% to 5.45%, and variable-rate mortgage holders were seeing real relief.

New Rules for First-Time Buyers

On September 16, 2024, the federal government announced a package of mortgage rule changes aimed at improving access for first-time buyers. The changes took effect December 15, 2024. The most significant:9

• 30-year amortization for first-time buyers: First-time buyers taking out an insured mortgage can now amortize over 30 years instead of the previous 25-year maximum, whether the home is newly built or resale. This reduces monthly payments by approximately 7% to 10%.
• Insured mortgage cap raised to $1.5 million: Previously, homes priced above $1 million required a minimum 20% down payment (no insurance available). The new $1.5 million cap allows buyers to access insured mortgages, and their lower rates, on more expensive properties.
• 30-year amortization for new construction (all buyers): Not limited to first-time buyers. Any buyer of a newly constructed home can access 30-year insured amortization.

These changes are meaningful. The 30-year amortization on a $600,000 mortgage at 4.50% reduces the monthly payment from about $3,320 (25-year) to about $3,025 (30-year), a savings of about $295 per month. The higher insured cap is even more impactful in the GTA, where the average home exceeds $1 million.

How the Ontario Market Responded

The market response to rate cuts was gradual, not explosive. Buyers who had been waiting for multiple years did not rush back in after the June cut. They wanted to see a trend. By fall, with four cuts behind them and more expected, buyers were watching closely.7

The condo segment, especially pre-construction condos bought as investments during the pandemic, is one to watch, since higher rates have made carrying costs harder for many investor-owners.

The Affordability Math: Better, But Not Fixed

Rate cuts have improved purchasing power, but the improvement is more modest than the headlines suggest. Here is why:

For illustration: at the peak overnight rate of 5.00% (with a representative 5-year fixed rate of around 5.79%), a household earning $100,000 qualified for approximately $380,000 in mortgage. At the overnight rate of 3.25% (with a representative 5-year fixed rate of around 4.49%), the same household qualifies for approximately $430,000. That is a $50,000 improvement, meaningful but not a major shift when the average GTA home is still above $1 million.

The 30-year amortization adds another layer. On a $500,000 insured mortgage at 4.49%, extending from 25 to 30 years reduces the monthly payment from approximately $2,765 to $2,520, a savings of about $245 per month. That makes the payment more manageable, but the tradeoff is paying significantly more interest over the life of the mortgage, assuming the rate holds for the full term: roughly $77,000 more on a $500,000 mortgage, and building equity more slowly.

What This Looks Like for a Real Buyer

Consider an illustrative example. A couple in Pickering, both teachers, with a combined income of $155,000 and $120,000 saved. They have been renting since 2022, waiting for conditions to improve. In December 2024, with the overnight rate at 3.25% and a representative 5-year fixed rate of around 4.49%, they qualify for a mortgage of approximately $665,000. With $120,000 down, now eligible for a 30-year insured amortization on a new build, their maximum purchase price is approximately $785,000.

In their target area of Pickering, freehold townhouses can cost more than they can afford. Still a stretch. But a new-construction townhouse development just east in Ajax is offering units at $769,000. On a $649,000 mortgage with a 30-year amortization at 4.49%, their monthly payment would be approximately $3,270 before the mortgage insurance premium, which is added to the loan and raises the payment somewhat. Two years ago, this purchase would have been impossible at their income level.

* This example is illustrative only and does not describe an actual client.

They are not getting a deal. They are not buying at the bottom. But for the first time since 2021, the math works for them, and they can include conditions on their offer. That is progress.

What We Are Watching

Heading into 2025, the key question is whether the Bank of Canada will continue cutting. The overnight rate has dropped 175 basis points in seven months, and many economists expect further easing, though the pace may slow. Trade tensions and the incoming U.S. administration add uncertainty.

Here is what we found ourselves repeating in client meetings: watching three things closely:

1. Spring 2025 sales volume: Will the combination of lower rates and new amortization rules bring sidelined buyers back in force? A surge in demand could push prices up, offsetting the affordability gains from rate cuts.
2. Condo market absorption: The GTA has a significant pipeline of new condo completions. If investor-owners continue selling and new buyers do not absorb the supply, condo prices could weaken further.
3. Renewal impacts: Hundreds of thousands of Canadians will renew in 2025, many from pandemic-era rates into rates that are better than 2023 peaks but still well above what they locked in at. How these borrowers handle the payment increase will shape the broader market.

For the first time in three years, the direction of travel on affordability is positive. Rates are falling. Policy is adapting. But the distance between where we are and where housing needs to be for the average Ontario household is still enormous.