Canadian real estate is the most affordable it’s been in three years—but that isn’t saying much. RBC data shows ownership costs have eased, though it forecasts improvements stalling soon and affordability worsening next year. Even with affordability at its best, it would only be a slight improvement over the peak of the 1990s real estate bubble—the last one to fully burst.
RBC’s Housing Affordability Index
Today we’re looking at RBC’s housing affordability index, which uses the share of income a median household needs to carry ownership costs for a benchmark (typical) home. Ownership costs are the monthly mortgage payments to carry a conventional mortgage on a benchmark (typical) home, along with property taxes and utilities. Generally speaking, a region is affordable when a median household needs to spend less than one-third of its income on ownership costs.
It’s a common way to determine affordability, with the Bank of Canada (BoC) and CMHC using similar methodologies. It notably fails to account for other issues, such as the size of the downpayment.
Canadian Real Estate Is The Most Affordable In 3 Years—A Slight Improvement From The 90s Bubble Peak
RBC Housing Affordability Index: The share of income a median household needs to dedicate to monthly ownership costs for a benchmark (typical) home across Canada.
Source: RBC.
Canadian housing affordability improved for a fifth consecutive quarter. A median household would dedicate 55.1% of their income to ownership costs in Q1 2025. That’s over 5 percentage points below last year (60.7%), and the all-time record high reached in Q4 2023 (63.5%). This is the most affordable ownership costs have been in the past 3 years.
Before celebrating, the affordability progress isn’t all that impressive. Since peaking in 2023, the 8.4 point correction only rolls back a third of the erosion that occurred as part of the low rate housing surge. At the same time, this decline brings the share just a point below the peak of the early-90s real estate bubble.
Canadian Real Estate Affordability Not Expected To Improve Much
Falling home prices are only responsible for part of the affordability improvement. Interest rate cuts and rising incomes further helped to push the share of income needed lower. These factors are expected to continue improving affordability in the near-term. The bank expects affordability to bottom by the end of this year (at 52%), before rising slightly in 2026.
“Any further progress gets trickier once interest rates stabilize, then it rests entirely on the evolution of home prices and household income… Price drops or strong income gains would be required to further drive significant improvement,” explains Robert Hogue, assistant chief economist at RBC.
“However, we expect generally stable prices in Canada over the next two years—with some local exceptions—and modest wage growth amid persistent labour market slack,” he adds.
Canadian housing affordability made mild improvements and isn’t expected to make much more progress. Apparently, this housing correction doesn’t correct; it just ends. Either a whole generation will be locked out of housing, or we’re underestimating the headwinds that may emerge.
In the 90s developers didn’t get to tell the reporting agency they didn’t slash prices then sell units for 20% below the cost of a resale.
It’s insane that anyone is paying sticker for a condo in Toronto or Vancouver right now.
LOL. RBC can dream (they can’t have home prices fall much further when they own the debt on that home), but the line they just drew with their little forecast is clearly absurd from the 30 years of prior data on there.
Kudus to Wong for remaining professional and not openly mocking it, but the forecast is straight up absurd.
Great catch, hadn’t even noticed their “forecast”. Wishful thinking on their part, or maybe some way of gaslighting potential buyers that we’re done with the drop. The banks have become little real estate helpers if you will.
But looking at this graph, the spike we witnessed in 2022 looks a lot like the one from 1990, meaning it’s about to drop drastically in the coming years.
These “economists” always fail to theorize about how different would the outlook be if we get into a nasty recession. Because it’s coming. Get the popcorn.
That’s a great point. We may already be in a recession, but won’t know it until a few quarters down the road
If its dropping in price as is the current situation real estate is definitely not affordable, most buyers do cannot afford to take a loss.
Politicians dreamed up a way of buying votes from the middle class and simultaneously reward big corporate donors by subsidizing low wages: financializing home ownership. All they had to do was turn up the nob on Immigration. A great idea while it lasted.
Now workers can’t afford to “get into the market.”
If mortgage rates drop 2%, what would the index be even if house price and income stays the same?
Fortunately, Canadians don’t have to live in these overpriced areas. Many can live/work in smaller communities across the country, buy a home, and still have funds available for the “fun” things in life. I’ve often said that real estate is like the weather – when there is a tornado in one community the rest of the country is calm and peaceful. Look around
Leaving for good means never returning. Unfortunately, many will return in their later years to enjoy the benefits of being a Canadian like OAS and healthcare.
Those who remain are the ones paying for the system, so that there fair weather Canadians can come to enjoy.
We should have laws that these returning Canadians will have to pay higher premiums to access those services, just like you have to pay more for life insurance when you are older.
What about.the newcomers.that haven’t worked a day in Canada..they are entitled to our services?? Wake up dude
Interesting read. The trends are definitely concerning. With so many Canadians leaving, I wonder how this will impact the Real Estate market long-term. Less demand might cool prices, but given how tight supply still is in many cities, I’m not sure it’ll make homes more affordable anytime soon. Also, if Canada does avoid a recession, could we see investors jump back in and drive prices up again? Curious what others think — is Real Estate still a safe bet here or is the landscape shifting too much?