Canada's Housing Affordability Recovery Runs Out of Steam

Canada's housing affordability recovery has lost momentum, according to RBC Economics. The national housing affordability measure improved by just 0.4 percentage points in Q2, its smallest quarterly gain in nearly a year. This puts it at 52.8%, still a relatively low reading that signals better affordability. However, the report warns that this improvement cycle may be nearing its end.

The stability of prices and interest rates, which have been driving the recovery, are unlikely to continue. Upward pressure on long-term interest rates and expected Bank of Canada hikes next year could push ownership costs up again after a significant drop since 2024.

Rising household income was the main driver of affordability improvement in Q2. However, this has not been consistent across all regions. In British Columbia, for example, a softening labour market weighed on worker pay, preventing buyers from fully benefiting from declining home prices.

The report also notes that some Prairie and Atlantic markets have recorded their first affordability deterioration in multiple quarters. Vancouver remains Canada's least affordable tracked market by a significant margin, with an aggregate measure of 83.9%.