Canadian housing affordability continued to improve in this year’s first quarter, although the situation in the country’s most expensive markets remains dire, a new report suggests.

“Affordability is still dreadful in Vancouver, Toronto and Victoria. Minor signs of strain are apparent in Montreal and Ottawa but conditions are normal in all other markets we track,” write RBC’s Chief Economist Craig Wright and Senior Economist Robert Hogue in a Housing Trends and Affordability report.

Each quarter of the year, RBC measures housing affordability by looking at what share of a household’s median income is required to carry home ownership costs in 14 major markets, as well as on the national level.

Canada-wide, RBC’s affordability measure clocked in at 51.4 percent, meaning a typical household in the country needs to set aside a little over half its pre-tax income to afford ownership costs, which include mortgage payments, property taxes and utilities.

The national measure eased by 0.3 percentage points in the first quarter of the year, the second-consecutive improvement. It remains up 0.2 percentage points from a year ago, although the economists see the potential for even greater affordability improvement in the coming months as a result of projected price declines in Western Canada and flattening mortgage rates, which aren’t expected to rise.

Recently, rates for five-year fixed-rate mortgages tumbled to a two-year low.

“The improvement was widespread across local markets. Price declines in the West and parts of Atlantic Canada, as well as rising household income helped lower the bar to ownership in most markets,” the bank economists note.

It’s generally recommended that households dedicate no more than a third of their income on housing.

In the Vancouver area, a median-earning household has to fork over an eye-popping 82 percent of its income to shoulder housing costs — so despite a quarter-over-quarter decline of 1.9 percentage points and annual drop of 5.1 percentage points, ownership remains out of reach for many on the west coast.

Victoria’s measure sunk 0.3 percentage points from the previous quarter to 58.6 percent. However, it is still up 0.2 percentage points compared to Q1 2018 levels.

Meantime, affordability worsened in the Toronto area. The measure read 66 percent, an increase of 0.3 percentage points from the final quarter of 2018 and 0.5 percentage points annually.

“So the bar to home ownership pretty much remains as high as ever. And with prices back on a slight upward trajectory, it’s unlikely to come down much, or at all, in the near term,” say Wright and Hogue.

In May, the average price of a detached home rose for the first time this year, a sign that even the hardest-hit segment of the market is showing signs of life.

The average price of a Toronto area home, including houses and apartments, was $838,540 last month, up 3.6 percent from May 2018, according to the Toronto Real Estate Board. Sales surged 18.9 percent, with 9,989 residential properties changing hands.

“Despite kicking into gear late, the spring season brought compelling evidence that a (slow) market recovery is now underway,” they add.

RBC : Canadian Housing Affordability is Improving, But It’s Still “Dreadful” in Toronto & Vancouver by Josh Sherman | Livabl