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Housing affordability in Canada improved for the third straight quarter, according to an analysis by National Bank of Canada economists, though most indicators remain far above their historical averages.

Although the median Canadian home price rose 0.5 per cent compared to the second quarter, median incomes rose and mortgage rates have come down, the analysis says. As a consequence, mortgage payments as a percentage of Canadians' income (a measure known as the MPPI) have gone down to their lowest point in a little over a year.

Housing prices remain in prohibitively high territory across much of the country, however. The economists, Kyle Dahms and Alexandra Ducharme, note that “the MPPI remains well above its historical average and the recent rise in five-year government bond yields since September could mean that the brightening may be short-lived.”

In the third quarter, MPPI for a median-priced Canadian home ($795,540) was 56.6 per cent, the analysis says. That's down 1.3 percentage points from the second quarter, and is down 3.4 percentage points from the third quarter last year, but still well above the average MPPI since 2000 of 40.7 per cent.

Furthermore, it would take almost six years of saving 10 per cent of median pre-tax income to make the $54,554 down payment on the median-priced Canadian home — far higher than the average since 2000 of 3.3 years.

In recent years, housing affordability has become a dominant concern for Canadians and a thorny political issue. Consumer surveys typically show large proportions of the public either worried about being able to afford a home or experiencing stress because of high payments.

Vancouver, Toronto unaffordability: The numbers

The National Bank analysis shows the affordability situation improved in nine of 10 markets, with only Quebec City seeing a small (0.2 percentage point) annual change in MPPI. But at 32 per cent, Quebec City’s third-quarter MPPI remains among the lowest of the 10 cities covered (alongside Winnipeg and Edmonton) and far below the values for Toronto, Vancouver and Victoria.

The data lay bare Vancouver’s ongoing affordability crisis. The MPPI for a typical Vancouver home (median price $1,280,656) dropped 5.9 percentage points since last year, to 92.3 per cent — meaning nearly all of the median Vancouver income. Saving for a down payment at 10 per cent of pre-tax median Vancouver income would take almost 28 years, around triple the average for the city since 2000 of around 9.6 years.

Toronto is not much better, with an MPPI of 78.4 per cent (the average since 2000 is 53.2 per cent) and around 23.5 years required to save for a down payment (the average since 2000 is 7.2 years).

(These figures refer to median prices for all dwellings and skew higher due to the typically higher prices for houses. The values for condos are significantly lower — saving for a down payment on a median condo in Toronto and Vancouver would take 4.5 years and 5.5 years, respectively, for example.)

Short-term factors

Dahms and Ducharme note that the impending change to federal housing regulations allowing 30-year amortization periods for first-time homeowners could give “upward momentum” to home prices.

“There are grounds for questioning whether such a measure really contributes to affordability when a mortgage will need to be paid for an additional five years,” they added.

On the other hand, sharp curbs to immigration announced throughout 2024 should “relieve some of the pressure,” they say — though they note new housing starts remain out of sync with recent population gains.

In an email to Yahoo Finance Canada, Dahms and Ducharme acknowledge the recent surge in real estate activity, which they say “will likely have some impact on home prices” in the shorter term. But they say a weaker labour market and slowing population growth could keep things in check. RBC analysts have also speculated that Canadian banks may compete aggressively for mortgage renewals in the months ahead.

“All told, we believe home prices should rise next year, but they may only slightly outpace headline inflation," the National Bank economists wrote. "Mortgage rates should continue to moderate, but perhaps not as quickly for fixed rates as the transmission of monetary policy may not be full reflected in five-year bond yields due to U.S. influence. As such, assuming incomes keep rising, affordability may continue to improve in the coming quarters but should remain worse than the pre-pandemic level.”

John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.