Falling home prices drive record 10th straight quarter of affordability gains

Housing affordability improved for a record 10th consecutive quarter in the second quarter of 2026 as falling home prices offset a modest increase in mortgage rates, according to National Bank of Canada.

The mortgage payment on a representative home fell by 1.1 percentage points to 51.1% of median household income, its lowest level in roughly four years, according to the bank’s latest Housing Affordability Monitor.

That marked the longest uninterrupted stretch of improving affordability recorded by National Bank. However, the report found that the source of the improvement is changing.

Lower mortgage rates drove much of the recovery through 2024, but the benchmark five-year mortgage rate rose seven basis points in the second quarter and was nine basis points higher than a year earlier.

Instead, a seasonally adjusted 2.1% decline in home prices reduced the mortgage-payment-to-income ratio by 1.1 percentage points. Rising household incomes contributed another 0.4 percentage points of improvement, offsetting the 0.4-point deterioration caused by higher mortgage rates.

“This shift from rate-driven to price-driven affordability gains was particularly evident in Vancouver and Toronto, where sizeable price declines generated the largest affordability gains among the markets covered,” National Bank economist Kyle Dahms wrote.

Since the mortgage-payment-to-income ratio peaked at 62.5% in the fourth quarter of 2023, it has fallen by 11.4 percentage points.

National Bank attributed 5.1 percentage points of that improvement to lower mortgage rates, 4.2 points to rising incomes and 2.1 points to falling home prices.

Affordability remains stretched

Despite the extended improvement, National Bank said affordability remains worse than its historical norm in all 10 metropolitan areas covered by the report.

The national composite remained 10.4 percentage points above its average since 2000. Hamilton, Victoria and Quebec City had the largest gaps relative to their respective long-term averages, each exceeding 14 percentage points.

Vancouver remained the country’s least affordable market, with the mortgage payment on a representative home consuming 79.4% of median income. The ratio stood at 73.9% in Victoria, 68.3% in Toronto and 57.5% in Hamilton.

Affordability improved in six markets during the quarter: Vancouver, Toronto, Hamilton, Calgary, Ottawa-Gatineau and Victoria. It deteriorated in Quebec City, Winnipeg, Montreal and Edmonton as home prices continued to rise in those markets.

Toronto recorded a 2.5-percentage-point improvement as its representative home price fell 3.6% during the quarter. Vancouver’s ratio improved by 2.6 points following a 2.9% price decline.

By contrast, Quebec City experienced the largest deterioration, with its ratio rising 1.4 percentage points as home prices climbed 3.5% quarterly and 12.5% annually.

National Bank does not expect mortgage rates to provide further affordability relief over the next year. That leaves income growth and restrained home-price appreciation as the principal paths toward continued improvement.

“On balance, we expect income growth to remain an affordability tailwind, but with financing costs no longer helping, further improvement will increasingly require home-price growth to remain contained,” Dahms wrote.

Source: Canadian Mortgage Trends