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A recent report from the Royal Bank of Canada (RBC) indicates that while recent interest rate cuts by the Bank of Canada have slightly improved housing affordability, challenges persist for prospective homebuyers. RBC's affordability metrics showed only marginal improvement in the second quarter, with buyers still grappling with the impact of significant price increases and interest rate spikes experienced during the pandemic. The required income to afford an average home in Canada remains much higher than the national average, highlighting ongoing barriers to homeownership.

Despite these challenges, there are expectations that further interest rate cuts from the Bank of Canada could provide more substantial relief for homebuyers in the coming months. The central bank has already lowered its overnight lending rate multiple times, with predictions for additional cuts. Although the income needed to carry a mortgage on an average home has decreased slightly, it still requires a significant income of $155,000, nearly double the median household income in Canada, which is estimated at $87,000. This disparity has contributed to a slowdown in home resales.

Additionally, potential changes in mortgage regulations, such as allowing first-time homebuyers to amortize insured mortgages over 30 years instead of 25, could enhance affordability but may introduce risks. There are concerns that extending mortgage terms could lead to higher overall interest costs and greater sensitivity to future rate changes. Moreover, if many borrowers opt for this new option, it could inadvertently drive up housing prices in some segments, potentially undermining the intended benefits of improved affordability measures.

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