RBC Warns Canada's Window for Improving Housing Affordability Is Closing
Royal Bank of Canada economists say the period of improving housing affordability is ending as rising bond yields and expected interest rate hikes push mortgage costs higher. National home prices stabilized in the second quarter after falling roughly 20% from their pandemic peak, while consumer insolvencies are rising but remain within pre-pandemic per capita norms.
Royal Bank of Canada (RBC) economists are warning that the recent period of improving housing affordability in Canada is coming to an end. While national home prices have fallen approximately 20 per cent from their post-pandemic peak, they stabilized in the second quarter, breaking a trend of steady declines that had persisted since the summer of 2025.
Despite the earlier price corrections, rising bond yields are pushing up fixed mortgage rates. Variable rates are also expected to follow due to anticipated interest rate hikes by the Bank of Canada. According to Capital Economics, five-year fixed mortgage rates could rise from a current average of 4.1 per cent toward 5 per cent. Such an increase would reduce the house price a buyer can afford by 9 per cent, significantly diminishing purchasing power for buyers constrained by payment size.
RBC’s housing affordability measure indicates that 52.8 per cent of median pre-tax household income was required to cover housing costs nationally in the second quarter. The 0.4 percentage point improvement recorded during the quarter was the smallest in almost a year, signaling that affordability gains are stalling as ownership costs begin to rise again. For historical context, housing costs required 33 per cent of income in 2001 and reached 63.6 per cent in 2023.
Affordability varies widely across the country. Regina, Alberta, remains the most affordable housing market in Canada, requiring 27.9 per cent of income for housing. Vancouver is the most expensive market, where owning a home takes almost 84 per cent of income.
Beyond the housing market, broader consumer financial health is showing mixed signals. Consumer insolvencies are rising, though BMO Capital Markets notes that per capita rates have returned to pre-pandemic norms. Most recent insolvencies are taking the form of consumer proposals rather than bankruptcies. This shift has been influenced by changes to the Bankruptcy and Insolvency Act in 2009, which raised the maximum unsecured debt limit for proposals from $75,000 to $250,000, allowing more consumers to retain their assets while managing debt.