Canadian housing affordability improved again in Q1, marking a ninth consecutive quarterly gain, the longest streak on record, said National Bank of Canada.
The mortgage payment as a percentage of income fell to 52.3%, its lowest level in four years, noted the bank. Even with this improvement, affordability remains stretched, with National Bank's indicator sitting well above its long-term average of 40.6% since 2000.
The latest improvement was helped by a modest decline in national home prices, the third decrease in four quarters. Once again, regional trends varied "meaningfully."
Interest rates have been a key factor in improving affordability since Q4 2023, falling seven times on a quarterly basis, pointed out the bank.
However, this wasn't a factor in the last quarter, as rates remained essentially unchanged. The situation could even reverse in Q2 as mortgage rates have resumed their upward trend in the wake of the war in Iran, driven by expectations of tighter monetary policy, pointed out National Bank.
This doesn't necessarily mean that affordability will deteriorate in Q2, however, as home prices fell nationwide in April due to declines in six out of 11 cities, including the country's three largest cities. There is no doubt that the population contraction in the three largest urban centers represents a headwind for activity and real estate valuations in 2026, it added.
Meanwhile, incomes continued to grow at a healthy pace in Q1, accounting for most of the improvement in affordability during that quarter. On a quarter-over-quarter basis, wage growth outpaced house price growth.
As a result, the house price-to-income ratio is at its lowest level since Q1 2021. National Bank expects this metric to continue to improve in 2026.