RBC’s aggregate housing affordability index, which accounts for a mix of all housing types, shows that ownership costs were swallowing up just over half of the median household income as of the third quarter of 2025.COLE BURSTON/The Canadian Press
Canada’s housing market is waking up for the spring selling season, but young prospective homebuyers would be justified to remain in a state of prolonged hibernation.
For over two years homes in much of the country have been getting more affordable, thanks to a mix of softer prices and, later, falling interest rates. The problem is that, for the most part, we are still nowhere close to pre-pandemic levels of affordability. With the exception of condos, owning a home remains far more expensive than it was before the last housing boom.
Worse: This era of somewhat-better-but-not-nearly-good-enough affordability may be almost over already.
At the start of the year, economists were predicting only marginal further improvements in affordability, driven by further home price declines in expensive markets and modest wage increases, with the Bank of Canada expected to hold rates steady for most or all of 2026.
Now, the Iran war has raised the odds of a rate hike this year, which, along with climbing bond yields, would mean higher mortgage rates for homebuyers.
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“We do see the housing affordability index continuing to decline over the remainder of 2026, but most of that improvement is likely behind us,” said Rachel Battaglia, an economist at Royal Bank of Canada.
An RBC metric measures how much of a typical household’s income would have to be spent on monthly homeownership costs, such as mortgage payments, property taxes and utilities, for a newly purchased property.
Tracking that measure through the years brings into focus just how unaffordable homes remain even after the recent declines in prices and borrowing costs.
RBC’s aggregate housing affordability index, which accounts for a mix of all housing types, shows that ownership costs were swallowing up just over half of the median household income as of the third quarter of 2025, the latest available data point. For single-detached homes, those costs were 60 per cent of the median household income.
For perspective, the general rule in personal finance is that shelter costs shouldn’t exceed 33 per cent of pre-tax income.
Condos, of course, are much cheaper, with the RBC index showing ownership costs taking up around 35 per cent of median incomes.
But the role of condos as affordable starter homes has come into question, as many young homeowners who bought units as a way to step on the property ladder are now struggling to sell and upsize to bigger homes.
It’s no wonder today’s homebuyers aren’t pouncing on cheap units in high rises.
Condos aside, though, homeownership remains, from coast to coast, more expensive than it was pre-pandemic.
“Even though in the headlines we’re reading a lot about the housing market downturn, home prices are actually still up compared to 2019,” Ms. Battaglia said.
So are interest rates. The Bank of Canada has slashed its trend-setting interest rate from five per cent down to 2.25 per cent since June of 2024. But those cuts have not completely reversed its steep rate hike campaign as it battled the inflation spike of 2021 and 2022. In 2019, its central bank’s rate stood at 1.75 per cent.
For now, RBC doesn’t see any interest rate changes in 2026, meaning that any further affordability gains would have to come from home prices falling further and wages inching up. The bank is expecting rate hikes to start in early 2027, Ms. Battaglia said.
But interest rates could climb sooner if the Iran war results in a sustained increase in oil prices. Worries about high fuel prices have stoked fears of another run-up in inflation, pushing up bond yields as well as expectations among investors that the Bank of Canada will hike rates.
The risk is higher borrowing costs for homebuyers and homeowners with upcoming mortgage renewals, as higher yields put upward pressure on fixed mortgage rates and central bank hikes typically push up variable rates.
Another measure of how out of reach homeownership remains if you’re a young Canadian with a middling income and no family help: The size of down payments.
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In Vancouver, as of the last quarter of 2025, it would take more than 10 years for a median-income household to save up enough cash for the minimum down payment needed to buy a typical home in the city, according to data crunched by economists at National Bank.
That’s assuming the household sets aside 10 per cent of their pre-tax income every year.
In Toronto, a median-income household would have to save for eight years. In Victoria, it takes nine years. And that’s after the federal government relaxed mortgage requirements in late 2024, raising the price cap for homes that can be purchased with a down payment below 20 per cent from $1-million to $1.5-million.
But don’t be fooled. In Canada’s priciest markets, people with median incomes wouldn’t be able to afford an average home with the smallest possible down payment anyways. While the National Bank metric is a useful bellwether of where affordability is going, it is not meant to be a realistic indicator of how much – and for how long – buyers with middling incomes would have to save to buy a typical home where they live.
In Toronto, for example, the minimum down payment based on the median home price currently works out to nearly $85,000. That would leave buyers with a monthly mortgage payment of around $5,400, equivalent to 65 per cent of their pre-tax income, according to an online calculator provided by financial products comparisons site Ratehub.ca.
To actually afford their mortgage, a median income household would have to pony up much more than $85,000 as a down payment.
In less expensive housing markets, households with middle-of-the-road incomes might still be able to buy an average-priced home with the minimum required down payment. But here, too, the numbers paint a not-so-great picture of affordability.
In Ottawa, for example, it now takes four years for people with typical incomes to save up for the smallest possible down payment, up from three years in 2019. In Quebec City, the timeline went from two to three years.
That’s because the largest recent affordability improvements have been in the most expensive cities, which have seen the biggest price drops, said National Bank economist Kyle Dahms.
Less expensive cities have seen smaller gains or even worsening conditions, he added.
And, of course, a rise in interest rates triggered by the crisis in the Middle East would be a hit for housing affordability across the board, he said. (Like RBC, though, National Bank, also expects any Bank of Canada rate hikes to begin in 2027, and hasn’t changed its view yet.)
You’ll have to excuse young, middle class Canadians if they don’t wake up and smell the roses this spring market season.
