Homes Got Cheaper in September, and Canadians Bought 7.7% Fewer of Them

In September, Canadian homes got a little cheaper, and buyers responded by purchasing fewer of them. The Canadian Real Estate Association counted 36,657 residential sales for the month, 7.7% fewer than the September before. Sales also fell 2.3% from August after seasonal adjustment, so this was more than the usual cooling at the end of summer. In August, sales had already been running 6.9% below the year before. The pullback got deeper as prices softened.

That looks backwards until you see how a purchase actually gets decided. A household doesn't buy at the price it likes. It buys at the price its mortgage approval reaches. If the approval falls short of the home, a lower sticker price doesn't help much. The gap between the two is what decides whether someone buys this fall or keeps renting.

The approval moves faster than the price

A lender works backwards from a monthly payment it's comfortable with, based on your income and debts. Then it tests that payment at a qualifying rate, which in Canada is the higher of your contract rate plus 2% or 5.25%. Whatever mortgage that payment supports at the qualifying rate is your ceiling.

Here's an illustrative example. Say a household's income supports a payment of about $2,713 a month. At a 6.5% qualifying rate over a 25-year amortization, that payment carries a mortgage of roughly $405,000. Push the qualifying rate to 7.0% and the same payment carries only about $387,000. Half a percentage point on the qualifying rate took roughly $18,000 off the approval.

Now compare that with prices. A 2% dip on a $450,000 Edmonton home is $9,000. One small rate move can wipe out a price drop twice that size. Anyone who sees "prices down" and assumes they're closer to buying may actually be further away.

So before you decide anything this fall, get your own approval number and know which rate drives it. Five-year fixed mortgages are priced off the yield on five-year Government of Canada bonds, which can move independently of the Bank of Canada's announcements. A move in the overnight rate makes headlines, but your fixed-rate approval follows the bond market.

Where the floor stops helping

The 5.25% minimum matters more than most buyers realize. Once your contract rate drops below 3.25%, the qualifying rate stops falling with it. Your actual payment would keep getting cheaper, but your approval would stop growing. At that point, more income, a larger down payment or a longer amortization moves your ceiling. Further rate cuts don't.

First-time buyers have one of those levers. They can take a 30-year amortization on an insured mortgage, which lowers the qualifying payment and stretches the approval. The insured mortgage cap of $1.5 million is well above most Edmonton price points, so it rarely limits buyers here.

What this means for sellers and investors in Alberta

Edmonton has held up better than the national numbers suggest, and conditions here have been drifting toward balance. Buyers moving from pricier provinces with equity in hand still show up. Local first-time and move-up buyers, though, can pay only what their approvals allow.

If you're selling, your realistic price is set by what the next buyer's lender will approve. Many sellers are waiting for 2022 prices to return. Those prices came from approvals that no longer exist at today's qualifying rates. If you're moving up, sit down with both numbers at once: what your current home sells for and what the bigger home costs. In a slower market, the gap between them can shrink even when both prices soften.

Investors face the same test, with rental income usually counted only in part. A cheaper property only works out if the approval and the rent actually cover it.

Prices make the headlines, but whether you can buy depends on your approval. That's the number to check before you decide whether this fall is your moment.