Even with the temperature dialed down in Canada's hottest housing markets, it keeps on getting less affordable to own a home.

In RBC’s latest quarterly housing affordability report, the affordability measure is now at its worst level in Canada since 1990. Rising interest rates are the main culprit. And with two more rate hikes expected in 2019, the price of owning a home will continue to escalate.

This year’s mortgage stress test — which required would-be buyers to qualify at a significantly higher interest rate than their offered rate — also contributed to the decline in affordability. In every market across Canada, buyers now need thousands of dollars more in income to buy a home with a mortgage.

Despite this, in Canada’s smaller cities — including Winnipeg, Quebec City and Saint John — owning a home is still largely affordable for the average family.

In Vancouver, Toronto and Victoria — Canada’s three most expensive markets —it took between two and three times the median household income to qualify to purchase an average home. In Vancouver, the income necessary to cover ownership costs and clear the mortgage stress test was $211,000 in the third quarter of 2018. The qualifying income was $167,000 in Toronto.

In Montreal and Ottawa — among the stronger markets in Canada over the last year — solid price gains are amplifying the effect of higher interest rates on ownership costs.

There is no break in sight in 2019.

The loss of affordability of the average-priced home has prompted many buyers to focus instead on lower-priced housing options, such as condos. But this has been somewhat of a Catch-22 because this strong demand resulted in higher condo prices, leading to some erosion of condo affordability.

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John Stackhouse is a nationally bestselling author and one of Canada’s leading voices on innovation and economic disruption. He is senior vice-president in the Office of the CEO at Royal Bank of Canada, leading the organization’s research and thought leadership on economic, technological and social change. Previously, he was editor-in-chief of the Globe and Mail and editor of Report on Business. He is a senior fellow at the C.D. Howe Institute and the Munk School of Global Affairs and Public Policy and sits on the boards of Queen’s University, the Aga Khan Foundation of Canada and the Literary Review of Canada. His latest book, "Planet Canada: How Our Expats Are Shaping the Future", explores the untapped resource of the millions of Canadians who don’t live here but exert their influence from afar.

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