There was an improvement in Canada’s housing affordability measure at the end of 2017.

It was the first time in two years that RBC Economics Research’s Housing Trends and Affordability Report has shown a decrease in its aggregate measure, albeit just 0.2 percentage points nationally to 48.3%.

As the measure is shown as the share of household income that would be required to carry the costs of owning a home at market price, a decrease indicates improving affordability.

Toronto saw a larger decrease in the measure, down 2.3 percentage points to 75.1%, but it is unlikely to have a meaningful effect.

"We expect the relief to Toronto ownership costs that ensued from the introduction of Ontario's Fair Housing Plan to be short-lived," said Craig Wright, Senior Vice-President and Chief Economist at RBC. "Our view is that Toronto prices will bottom out sometime this spring. Then we expect further interest rate hikes through the remainder of this year, which has the potential to stress housing affordability markedly in Canada."

The report shows that affordability worsened in BC with Vancouver and Victoria both seeing higher prices in the last quarter of 2017, with the aggregate affordability measure rising 1.8 and 0.5 percentage points respectively.

"Unfortunately, Vancouver homebuyers are being challenged by the worst affordability levels ever recorded in Canada," said Wright. "The costs of owning a home at today's prices would have represented an astounding 85.2% of a typical household's income in the fourth quarter. In this context, it wasn't a surprise to see the BC government announced further housing policy initiatives to cool the market in its 2018 budget."

Affordability also weakened in Montreal for the ninth time in the past ten quarters, denting its reputation as an affordable market.

The picture has changed little for housing markets in the Prairies and Atlantic Canada. Home ownership costs have remained largely stable though, a small increase in mortgage rates contributed to a slight deterioration in affordability within these regions in the fourth quarter.

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