Canada’s years-long housing correction, which has made homeownership more attainable after pandemic-era price surges, is showing signs of running out of road, according to a report from Royal Bank of Canada.
Home prices have fallen roughly 20 per cent from their post-pandemic peak, helping ease affordability pressures for buyers after sellers endured a prolonged downturn. But RBC‘s report, led by assistant chief economist Robert Hogue, found that in the second quarter the only factor still improving affordability was rising household income — and those gains were modest. Wage growth was seen in most regions, aided by government measures such as the one-time Canada Groceries and Essentials Benefit paid out in June.
National home prices stabilized in the second quarter, breaking a streak of declines that had substantially boosted affordability since the summer of 2025, Hogue said. At the same time, rising government bond yields are pushing fixed mortgage rates higher, and with the Bank of Canada expected to raise interest rates next year, variable rates are likely to follow, he said.
Mortgage Rates Seen Climbing
According to Capital Economics, bond yield trends suggest average five-year fixed mortgage rates could rise from 4.1 per cent toward 5 per cent. The firm said that for a buyer whose borrowing is limited by the size of their mortgage payment, that increase could cut the price of a home they can afford by 9 per cent. Capital Economics also noted that elevated energy prices will add further strain by raising utility bills.
Hogue said upward pressure on long-term interest rates, combined with the likelihood of Bank of Canada rate hikes next year, could push ownership costs higher again after they had fallen significantly since 2024.
RBC’s affordability measure, tracked since 1985, calculates the share of median pre-tax household income needed to cover mortgage payments, property taxes and utilities — with a lower reading indicating better affordability. Housing was most affordable in 2001, when just 33 per cent of income covered homeownership costs. That figure had climbed to 46 per cent just before the pandemic, dipped briefly in 2020, then spiked to a peak of 63.6 per cent in 2023. The subsequent correction brought costs down to about 53 per cent by April of this year.
Nationally, 52.8 per cent of income was required to cover housing costs in the second quarter — a 0.4 percentage point improvement that was the smallest in almost a year. Regina remains the most affordable major market, where 27.9 per cent of income goes toward housing, while Vancouver remains the least affordable, at nearly 84 per cent of income.
Canada Housing Affordability Snapshot
Consumer Insolvencies Also Rising
Separately, consumer insolvencies are climbing again, though economists say the trend is less alarming than headline numbers suggest. Shelly Kaushik, senior economist at BMO Capital Markets, said the raw insolvency level is skewed by population growth since the pandemic, and that on a per capita basis the rate has returned to pre-pandemic norms.
Kaushik also pointed out that most filings are now consumer proposals rather than bankruptcies, a shift that dates back to 2009 changes to the Bankruptcy and Insolvency Act, which raised the maximum unsecured debt limit for a proposal from $75,000 to $250,000, excluding mortgages on primary residences. Proposals tend to allow filers to pay down debt while retaining more of their assets compared with bankruptcy, which Kaushik said offers some protection against pressures such as past interest rate hikes, trade uncertainty and higher energy prices. She said economists will continue watching how consumers respond as trade and energy-related pressures continue.
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