Rate cuts and new mortgage rules could help the market – but affordability issues remain a big factor for hopeful buyers

A steady decline in interest rates and the introduction of new mortgage rules have spurred hopes of a spring housing and mortgage market rebound – but that recovery could prove slow and steady rather than a big spike.
Activity to round out 2024 in major markets including Toronto and Calgary was subdued, although Vancouver, Edmonton, and Montreal all continued to build strong momentum between November and December.
The prospect of more Bank of Canada rate cuts in the coming months could boost homebuyer sentiment further, according to a new Royal Bank of Canada (RBC) analysis, although doubts about a January reduction have risen after the release of stronger-than-expected employment data last week.
Affordability struggles remain despite new mortgage rules
New measures introduced by the federal government towards the end of last year saw the insured mortgage cap increased to $1.5 million and 30-year amortizations rolled out for first-time buyers and Canadians purchasing newbuilds in an effort to boost mortgage affordability.
The higher cap technically allows Canadians to buy pricier homes with a smaller downpayment – but for purchases toward the higher end of that limit, related costs and premiums can still represent an eyewatering amount, according to a Toronto-based broker.
JP Boutros, mortgage sector advisor, highlights the incoming Prime Minister's challenge of addressing Canada’s housing shortfall, with 3.5 million homes needed by 2030.https://t.co/RmJXc8o08a
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 15, 2025
“We haven’t really noticed much of a difference in terms of inquiries when it comes to the new insured mortgage rate cap,” Taz Zaide (pictured top), of 6ix Mortgage Group, told Canadian Mortgage Professional. “Generally speaking, the premiums are going to be so substantial that you might as well pay the difference.
“If you’re going to go up that high and buy something with a premium of over $50,000 or $60,000 on CMHC [Canada Mortgage and Housing Corporation insurance], why not save a little bit more and just pay the 20%? We try to steer people in that direction – you ideally want to try to hit the minimum 20% so you can save on those fees, because they’re going to be substantial.”
RBC’s analysis noted that affordability remains a huge constraint for many buyers across Canada, with Royal LePage also revealing little change in pricing throughout countrywide housing markets.
The real estate giant’s latest house price survey showed that the aggregate price of a home jumped 3.8% in the fourth quarter of 2024 year over year and ticked 0.5% higher compared with Q3.
But Royal LePage’s president and CEO Phil Soper still sounded an optimistic tone on the 2025 outlook, highlighting a potential 100-basis-point drop in the Bank of Canada’s benchmark rate as a factor that could “steadily [improve] affordability.”
How are first-time homebuyers set to fare in the year ahead?
Among the first-time buyer cohort, Zaide said plenty are currently left disappointed when they find they aren’t able to qualify for the amount they’d hoped for, with some having unrealistic expectations of how much mortgage they can afford.
Still, the prospect of lower rates down the line are presenting some cause for optimism. “When it comes to qualification, they’ll get maybe $150,000 to $200,000 less than what they’re hoping for [right now],” he said. “So a lot of these people are kind of on the fence mainly because of the fact that they can’t qualify for as much as they’d like.
“I think for 2025 we’re hoping that changes when we have these rate drops that we’re expecting to come in for the variable – about another 1% in rate drops that we’re projected to have, and that’s on the conservative side.”
Those lower rates would brighten the qualification picture for new buyers, he said, and boost consumer confidence with borrower preferences likely to continue shifting towards variable- over fixed-rate options.
“Hypothetically, [further rate cuts] should bring variable rates down to about 3.35% to 3.55%, which will significantly ease up on the qualification for new buyers as well as potentially make the market pick up again. I say potentially because nobody really knows what will happen,” he said.
“But I think that’s something that a lot of people are waiting on because right now fixed rates are at about 4%. I think when those variable-rate drops, that half-percentage extra would really help people qualify.”
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