RBC warns Canadas housing affordability window is closing

Canada’s housing affordability improvement cycle is nearing its end, according to the Royal Bank of Canada (RBC). After a four-year correction that saw home prices drop around 20% from their pandemic peak, affordability gains are slowing. The only factor improving affordability in the second quarter was rising household incomes, though these gains were modest.

RBC’s report, led by assistant chief economist Robert Hogue, notes that wage growth occurred in most regions, supported by government benefits like the one-time Canada Groceries and Essentials Benefit distributed in June. However, national home prices stabilized in the second quarter, ending the trend of steady declines that had improved affordability since the summer of 2025.

Rising bond yields are worsening ownership costs, pushing up fixed mortgage rates. With the Bank of Canada expected to hike interest rates in the new year, variable rates will also increase. Capital Economics suggests that five-year fixed mortgage rates could rise from an average of 4.1% toward 5%, reducing the house price buyers can afford by 9%. High energy prices will further strain affordability by raising utility bills.

RBC’s housing affordability measure, which tracks the share of median pre-tax household income needed to cover homeownership expenses, shows a national reading of 52.8% in the second quarter. This marks the smallest improvement in almost a year. Regina remains the most affordable market, with just 27.9% of income required for housing, while Vancouver is the most expensive, where homeownership takes nearly 84% of income.