Affordability improved in Q2 by the most since 2009 as measured by the urban composite index. All the observed markets registered an amelioration in the quarter (left chart). The most significant factor to this development was the decline in  mortgage rates. Indeed, the free-fall in financings costs was the most substantial since 2010Q3. This combined with a healthy labour market producing income growth on the scale of 1.7% in the quarter and home prices declining 1.0% meant that all inputs contributed to the improvement in housing affordability. Vancouver experienced the largest progression in affordability among urban markets in Q2. Toronto essentially mirrored the situation in Vancouver with a large improvement in the non-condo market and some progress also in the condo market. The decline in mortgage rates combined with a robust labour market reduced the risk of a correction in home prices in the coming months. That being said, there are still some headwinds limiting upside on home prices. Despite the recent progress in Vancouver and Toronto, these markets remain unaffordable on a historical basis (right chart). Moreover, while the contractual mortgage rate declined 68 basis points since last December, the qualifying rate declined only 15 basis points meaning that most potential new buyers excluded by B-20 measures still are.

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