Housing affordability has been a growing concern in major Canadian cities, with Toronto often at the center of the conversation. As we enter 2025, new data has shed light on how much income is required to purchase a home in Toronto and other key markets across Canada. Here’s an overview of the latest findings and what they mean for prospective buyers.
The State of Toronto’s Real Estate Market
A report released in January 2025 highlights the changes in Toronto's housing market over the past year. While 2024 began with sluggish buyer demand and high mortgage rates, the second half of the year saw notable shifts. Lower interest rates, combined with a slight dip in home prices, improved affordability for buyers entering the market.
In January 2024, the mortgage rate hovered around 5.71%, with stress test rates at 7.71%. At the time, households needed an annual income of approximately $210,200 to purchase an average home priced at just under $1.1 million. This income requirement represents a combined household income, meaning it accounts for both partners in a typical buying scenario.
The Role of Interest Rates and Prices
Interest rates have a significant impact on housing affordability. A 2% drop in rates over the past year has led to an approximate 20% increase in purchasing power for buyers. While this improvement has made it easier for some to enter the market, it’s important to note that home prices, though slightly lower, remain high compared to historical averages. In Toronto, the average price declined by about $20,000 in 2024, but the difference was less impactful when measured as a percentage.
For prospective buyers, the affordability landscape in 2025 is shaped by a combination of lower rates and increased inventory. Properties carried over from December into January have provided more options for those looking to make a purchase.
Comparing Major Markets
Toronto isn’t the only city where affordability is a challenge. Vancouver remains the most expensive market, with households needing an income of $229,000 in January 2024 to purchase a home. By December, this figure dropped to $216,700. For Hamilton, affordability improved slightly, but households still required an income of $163,910 to enter the market.
Interestingly, cities traditionally considered more affordable, such as Fredericton, New Brunswick, are also seeing rising income requirements. In Fredericton, the income needed to purchase a home increased by $6,000 in 2024, reflecting a trend of growing demand and higher prices in smaller markets.
What Affects Income Requirements?
The affordability calculations are based on several factors:
Key Takeaways for Buyers
Planning for 2025
If you’re considering buying a home in Toronto or elsewhere in Canada this year, understanding your financial position is crucial. With household income requirements remaining high, careful budgeting and planning can help you navigate the challenges of today’s housing market. Additionally, staying informed about interest rate changes and market trends can provide a clearer picture of when to make your move.
As affordability remains a key concern, the 2025 market offers both challenges and opportunities for buyers. Whether you're a first-time homebuyer or planning your next property purchase, staying updated on market conditions is essential to making informed decisions.
The State of Toronto’s Real Estate Market
A report released in January 2025 highlights the changes in Toronto's housing market over the past year. While 2024 began with sluggish buyer demand and high mortgage rates, the second half of the year saw notable shifts. Lower interest rates, combined with a slight dip in home prices, improved affordability for buyers entering the market.
In January 2024, the mortgage rate hovered around 5.71%, with stress test rates at 7.71%. At the time, households needed an annual income of approximately $210,200 to purchase an average home priced at just under $1.1 million. This income requirement represents a combined household income, meaning it accounts for both partners in a typical buying scenario.
The Role of Interest Rates and Prices
Interest rates have a significant impact on housing affordability. A 2% drop in rates over the past year has led to an approximate 20% increase in purchasing power for buyers. While this improvement has made it easier for some to enter the market, it’s important to note that home prices, though slightly lower, remain high compared to historical averages. In Toronto, the average price declined by about $20,000 in 2024, but the difference was less impactful when measured as a percentage.
For prospective buyers, the affordability landscape in 2025 is shaped by a combination of lower rates and increased inventory. Properties carried over from December into January have provided more options for those looking to make a purchase.
Comparing Major Markets
Toronto isn’t the only city where affordability is a challenge. Vancouver remains the most expensive market, with households needing an income of $229,000 in January 2024 to purchase a home. By December, this figure dropped to $216,700. For Hamilton, affordability improved slightly, but households still required an income of $163,910 to enter the market.
Interestingly, cities traditionally considered more affordable, such as Fredericton, New Brunswick, are also seeing rising income requirements. In Fredericton, the income needed to purchase a home increased by $6,000 in 2024, reflecting a trend of growing demand and higher prices in smaller markets.
What Affects Income Requirements?
The affordability calculations are based on several factors:
- Home Prices: Average home prices from the Canadian Real Estate Association’s MLS Home Price Index (HPI).
- Mortgage Rates: The average five-year fixed rate across Canada’s major banks.
- Down Payment: A 20% down payment is assumed for these calculations.
- Property Taxes and Heating Costs: Property taxes of $4,000 annually and heating bills of $150 monthly are factored into the required income.
- Amortization Period: A standard 25-year mortgage period is used.
Key Takeaways for Buyers
- Household Income: The income required to purchase a home reflects combined household earnings, not individual salaries. For example, two partners could each earn $100,000 to meet the $200,000 income threshold required in Toronto.
- Market Trends: As interest rates remain relatively low compared to the past two years, affordability may improve slightly in 2025. However, rising prices in smaller markets suggest growing demand in areas traditionally considered more affordable.
- Timing Matters: The real estate market tends to fluctuate seasonally. In 2024, affordability hit its lowest point in November, with households needing $194,900 to purchase an average home in Toronto.
Planning for 2025
If you’re considering buying a home in Toronto or elsewhere in Canada this year, understanding your financial position is crucial. With household income requirements remaining high, careful budgeting and planning can help you navigate the challenges of today’s housing market. Additionally, staying informed about interest rate changes and market trends can provide a clearer picture of when to make your move.
As affordability remains a key concern, the 2025 market offers both challenges and opportunities for buyers. Whether you're a first-time homebuyer or planning your next property purchase, staying updated on market conditions is essential to making informed decisions.
