Canadian Real Estate Prices Climbed Faster Than Mortgage Payments

Canadian Real Estate Prices Climbed Faster Than Mortgage Payments

Canadian mortgage payments went from virtually nothing to the highest level in well over a decade, inflicting pain on mortgage borrowers. However, the value of homes also surged. In fact, from the rate cuts that sent home prices surging in March 2020 to the end of 2023, the growth rate of home prices outpaced the increase in the average mortgage payment on file at Equifax. This was true in most of Canada’s largest cities, especially in Eastern Canada where the average household’s payment significantly lagged home price growth. 

Canadian Home Values Climbed Faster Than Mortgage Payments

The price of a home generally rose faster than mortgage payments across Canada. The average payment on Equifax credit files was $1,685 per month as of Q4 2023. Since Q1 2020, the average payment has climbed a mind-blowing 27.7%. 

In contrast, the price of a typical home climbed 28.5% over the same period—about 0.8 points faster. A trend that was generally consistent across most of the country. 

Canadian Home Prices Grew Significantly Faster Than Mortgage Payments

The percent change in average mortgage payments vs the benchmark price of a typical home from March 2020 to December 2023 for major Canadian cities.

Source: Equifax; CMHC; CREA; Better Dwelling.

Most of Canada’s Big Cities Saw Prices Rise Faster Than Payments

Let’s start with Canada’s largest six cities, where most saw home prices rise faster than payments. Calgary had the biggest gap, with the rate of home price growth outpacing mortgages by a whopping 21.3 points over the period. It was followed by Montreal (7.4 points), Ottawa (1.9 points), and Edmonton (0.4 points). 

Two big notable exceptions were the most expensive markets—Toronto and Vancouver. Toronto saw the average mortgage payment grow 8.3 points faster than home prices, while Vancouver saw payments grow 7.2 points faster over the period.  

Eastern Canada Saw Home Prices Rise Much Faster Than Payments

When looking at smaller cities in the CREA HPI, Eastern Canada led for price growth beating mortgages payments. Moncton has an absurd gap, with the price of a typical home growing 65.8 points faster than the average mortgage payment. Saint John was a distant second with a 37.8 point lead, followed by Halifax with the rate of home prices 36.7 points higher than the average mortgage payment.

The flip side, where the growth rate of mortgages outpaced home prices, was topped by Toronto and Vancouver. In third place, Regina and Hamilton were tied with home price growth lagging mortgage payments by 7.1 points. 

In general, markets with the fastest price growth would have the biggest gap. Existing mortgage borrowers have significantly smaller mortgages, thus they helped provide a drag on the average. On the upside, existing borrowers that saw their payments rise sharply also saw the value of their assets outperform that increased payment. 

At least buyers have an answer to the question, “how the heck can so many people afford a home?” The answer is they can’t, the vast majority of people are servicing a mortgage significantly cheaper than the one a buyer would need today. Even with climbing mortgage payments, the appreciation in most cases greatly outpaced the pain of rising interest costs.