Canadian real estate affordability continued to improve in Q2 2026, but remains far from affordable. The Bank of Canada’s (BoC) Housing Affordability Index logged an 11th straight quarter of improvement, as falling prices, lower rates, and rising incomes drove a historic correction. Unfortunately, housing remains unaffordable for most households, and affordability is still significantly worse than pre-2020. Further improvements are likely needed to revive the market, and one of Canada’s biggest banks sees only one way forward.
Bank of Canada Affordability Index
The BoC’s housing affordability index measures the share of income needed to own a home. Income is the disposable income of an average household, which skews higher than the median, thus overstating affordability. Housing costs here are defined as mortgage payments and utilities, and the index uses a 6-month rolling average of resale prices. The reading is the share of income required to make those payments, meaning higher numbers indicate housing is less affordable.
Canadian Housing Affordability Improves, but Still Not Affordable
The Bank of Canada Housing Affordability Index: Share of disposable household income needed for monthly mortgage and utility payments.
Source: Bank of Canada; Better Dwelling.
The affordability index fell 0.8 percentage points (ppts) to 41.3% in Q2 2026, shedding 2.4 ppts over the past year. Affordability has actually improved 13.2 ppts since the recent peak of 54.5% in Q3 2023, but that’s still one of the worst levels in history. Requiring more than two-fifths of income means most households still couldn’t qualify for a mortgage at the national level.
Even with one of the sharpest improvements on record, the market has a long way to go. Canadians considered it challenging to buy a home pre-2020, and the current level is still 4.9 ppts above the 36.4% reported in Q4 2019. Then there’s the issue of how affordability has improved, which caught the eye of bank economists.
Canadian Home Prices Only Have One Path Forward
In a research note to investors this morning, BMO Capital Markets warned that real estate remains rocky. “A fundamental reason why we remain cautious on the Canadian housing outlook—beyond all the distracting trade headlines—is that affordability is just not yet back to normal,” explains BMO chief economist Douglas Porter.
They note those improvements reflect the 2024/2025 rate cuts, a 20% drop in national home prices from the 2022 peak, and real personal income growth. However, they warn that it’s still a long way back to “affordable.” While anything is possible, they only really see one way forward with the current setup.
“How can it get back to ‘normal’? Incomes could grow, but that takes time. Prices could fall further, or at least dip versus income growth. And, finally, interest rates could come down a bit more—but that certainly does not seem to be in the cards, given the Bank’s hawkish stance. Thus, the burden still seems to be on prices,” explains Porter.
If you’re only following the national numbers, that may sound close to impossible. However, the sharp declines in the national numbers are skewed due to how the index basket is built. B.C. and Ontario—though still not affordable—represent the only provinces that have seen significant declines. Most provinces have seen prices grow over the past few years, and remain near all-time highs—if not currently at those levels. With valuations still very much stretched, it wouldn’t be entirely surprising to see further price declines.
