RBC warns Canada's housing affordability gains are stalling
The bank's national measure improved by only 0.4 percentage points last quarter, the smallest gain in nearly a year.
Canada's housing affordability improved by just 0.4 of a percentage point in the second quarter, the smallest quarterly gain in nearly a year, according to a new analysis by Royal Bank of Canada.
The RBC national affordability measure, which tracks the share of median pre-tax household income needed to cover mortgage payments, property taxes and utilities, settled at 52.8%.
The report by RBC assistant chief economist Robert Hogue and economist Rachel Battaglia described the improvement as the smallest in almost a year and warned that the conditions driving it are unlikely to hold.
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"Upward pressure on long-term interest rates and likelihood of Bank of Canada hikes next year could put ownership costs on the rise again after dropping significantly since 2024," the report said.
Rising household income was the only driver of affordability improvement in the second quarter, the report noted.
"Rising household income accounted for the entire affordability gain in Canada in Q2 as home prices and rates held fairly steady," it said.
That pattern was consistent across most regions, reflecting firmer wage growth and government transfers including a one-time top-up of the Canada Groceries and Essentials Benefit distributed in June.
In British Columbia, a softening labour market weighed on worker pay, preventing buyers from fully capturing the benefit of still-declining home prices.
In Quebec and parts of Atlantic Canada, strong income growth was outpaced by solid property appreciation, eroding purchasing power.
Several Prairie and Atlantic markets recorded their first affordability deterioration in multiple quarters.
Vancouver remains Canada's least affordable tracked market by a significant margin, with RBC's aggregate measure at 83.9%, down 1 percentage point in the quarter following 10 consecutive quarterly declines.
The report noted those declines "have rolled back more than half the spike early in the pandemic," yet the city "still holds the crown for Canada's least affordable market."
Home resales in the region are down more than 6% year-to-date, and prices are off between 3% and 7% from a year ago depending on property type.
Toronto posted the second quarter's largest improvement among major cities, with its aggregate measure falling 1.2 points to 64.1%, still Canada's second-worst reading.
The condo segment, a critical entry point for first-time buyers in Toronto, reached its most favourable affordability level since 2017.
Calgary held broadly stable at 41.3%, while Regina retained its standing as Canada's most affordable tracked market at 27.9%.
The near-term outlook is more cautionary, the report warns.
Rising bond yields are already pushing fixed mortgage rates higher, while expected Bank of Canada rate increases in 2027 would add further pressure on variable-rate borrowers.
The report flagged that "spiking energy costs will exacerbate matters by raising utility bills," a strain it noted will hit Atlantic Canada particularly hard heading into colder months.
"We see these factors triggering a modest loss of affordability as 2027 rolls in," the report said.