Canadian Mortgage Rates Need to Drop to 3% to Revive Housing Market, Say Experts

Canada’s housing market is unlikely to heat up unless mortgage rates fall closer to three per cent, according to industry analysts.

Currently, the lowest available rate for a five-year fixed mortgage sits around 3.74 per cent. That’s not low enough to spur a significant uptick in homebuying activity, say economists. In fact, a recent survey found that 68 per cent of prospective homebuyers view today’s rates as a major obstacle. Nearly 40 per cent of respondents said they wouldn’t consider buying or refinancing until rates dip to three per cent or lower.

From both affordability and investment perspectives, a three per cent rate is considered the tipping point. At four per cent, borrowing costs still feel too high for many Canadians, and the numbers don’t make sense for first-time buyers or investors alike.

Mortgage professionals note that when rates hit the three per cent mark, real estate activity typically picks up more listings, more offers, and more deals closing. While rates have been edging lower, recent economic uncertainty, such as tariffs and inflation concerns, has created volatility and made buyers cautious.

Affordability remains a major barrier. A recent survey showed that 67 per cent of Canadians are only comfortable spending up to $1,749 monthly on housing. Even those earning over $100,000 annually said they struggle with payments above that threshold. However, the average monthly mortgage payment in Canada currently stands at $1,829.

Given the national average home price of $678,331, many potential buyers find themselves priced out. While the average mortgage most Canadians feel comfortable carrying is around $350,000 over 25 years, that doesn’t stretch far, especially in expensive markets like Vancouver, where entry-level homes often exceed $800,000.

With a typical down payment of less than 20 per cent, the gap between what buyers feel comfortable paying and the actual cost of homeownership remains significant.

Until borrowing costs come down meaningfully, experts believe the housing market will stay in low gear.