Canadian real estate affordability just saw its longest improvement streak in history. National Bank‘s Q3 housing affordability index shows a record 11 quarters of improvements. Tragically, a long streak of minor improvements means it’s still one of the worst markets ever. The bank warns that higher mortgage rates are also likely to bring those improvements to an end. 

Canadian Housing Affordability Improves For Longest Streak Ever

Monthly mortgage payment on median home price, all types of dwellings (25-year amortization, 5-year term)

Source: National Bank Financial. 

Canadian housing affordability just printed its longest improvement streak ever. Mortgage payments on a typical home as a share of median household income fell 0.7 percentage points to 50.9% in Q3 2026. That means a household would spend 50.9 cents of every pre-tax dollar they make to pay a mortgage at today’s prices. While high, that’s the lowest it’s been in a while. 

“Housing affordability improved for an eleventh consecutive quarter in Q3 2026, extending the longest period of gains on record,” explains National Bank economist Kyle Dahms. 

The improvement was driven by lower home prices and higher incomes. A 1.0% drop in seasonally adjusted home prices in Q3 trimmed 0.5 points from the index. At the same time, the bank estimates that household income rose 0.7% in the quarter, trimming 0.4 points from the index. Together, those gains more than covered the 0.2-point erosion from rising mortgage rates in the quarter. 

Affordability improved due to falling prices and higher incomes, not cheaper financing? Fascinating, but let’s put a pin in that for a moment.  

Canada’s Record Affordability Gains Still Leave Housing Unaffordable  

Despite the streak, actually buying a home is pretty much impossible for most of Canada. After peaking at roughly 66% of income in 2023, the index has made a sharp improvement. “The cumulative improvement since Q4 2023 now approaches 15 percentage points, although the Composite 10 remains 9.7 points above its historical average and 8.5 points higher than its pre-pandemic level,” explains Dahms.

Keep in mind that longer elevation above the average since 2000 helps to drag that number higher. Ten years ago, the average since 2000 was 31.1% of income, according to the bank’s report from then. It’s since climbed to 41.2%, meaning the baseline is worse and normalizing the lack of affordability. 

That said, the bank warns this may be as good as it gets in the near term. 

Soaring Mortgage Rates Threaten To Derail Improvements

Rising mortgage rates threaten to offset affordability gains. The bank’s 5-year fixed benchmark mortgage rate added 38 basis points (bps) in October, up 45 bps from its Q3 average. It was the largest monthly jump in four years, pushing the rate to its highest level since July 2024. 

“All in all, housing affordability is facing in Q4 its most significant interest-rate challenge since 2022,” warns Dahms. 

If home prices are flat in October, mortgage rates would add 2.4 points to the payment burden. That would be partially offset by a 0.2-point improvement from rising incomes, but still leave the index at 53.1%. What happens is anyone’s guess for the rest of the year, but the Bank of Canada (BoC) sees this continuing. The central bank warns inflation won’t return to the target rate until 2028. That’s a long return trip with higher borrowing costs along the way. 

While the bank’s view is that higher rates will erode affordability, they don’t touch the outlook beyond Q4. In this very Q3 report, affordability improved alongside higher rates. Rising mortgage rates diminish credit capacity, reducing household leverage and thus liquidity. Weaker liquidity pushes prices lower, which can potentially offset the pain over time. 

BoC research previously revealed that home prices absorbed savings from lower interest rates. Instead of saving on interest, prices rose to absorb the extra debt service capacity. The US Federal Reserve made a similar argument, while the BIS attributes the post-pandemic global home price surge to rates being too low for too long.