Escalating mortgage rates in the previous two quarters had overshadowed any benefits from declining home prices. On average, mortgage rates had added 4.3 percentage points to RBC’s national aggregate measure, while declining prices subtracted only 2.1 percentage points. However, in the first quarter, the improvement in affordability occurred despite a slower rate of price decline thanks to flat mortgage rates.

Affordability challenges persist despite modest improvement

While the temporary improvement in affordability is a welcome change, the report highlights that it only makes a small dent in the overall loss of affordability that has occurred since mid-2020. Middle-income households in cities such as Vancouver, Victoria, Toronto, Montreal, Ottawa and Halifax still face significant challenges when it comes to affording a home. RBC’s local affordability measures indicate that conditions remain tougher than usual across the country.

Market rebound raises concerns about affordability

Despite expectations that the housing market would take longer to recover, Hogue notes the surprising rebound in demand and a tightening of supply in many parts of Canada, including Ontario and British Columbia. He says this could potentially put upward pressure on prices, reversing the recent improvements in affordability.