Canadian housing affordability improved for the eighth consecutive quarter in Q4 2025, the longest streak ever recorded by National Bank Financial's Housing Affordability Index. The pace of gains is faster than anything seen before.

Here is the catch: a typical mortgage still consumes 51.6% of the median household income. The long-term average since 2000 is 40.5%. The threshold most financial advisors consider affordable is 30%. So after eight quarters of record improvement, Canadian housing is still 27% less affordable than normal, and nearly twice as expensive relative to income as what most experts consider sustainable.

That is the tension this article is about. Progress is real. The gap is also real. And understanding both matters if you are trying to make a housing decision in 2026.

‍

How Bad It Got First

To understand why eight quarters of improvement still leaves buyers in a difficult position, you have to start with what happened before.

The NBF index hit its worst reading ever in Q4 2023. At that point, a typical mortgage was eating up over 62% of median household income nationally. In Vancouver, the number briefly touched 103.9%, meaning a typical mortgage payment exceeded the entire median household income. That is not a typo. In Canada's most expensive city, buying a typical home required more than 100% of what a median-income household earned. Monthly.

Toronto was not far behind, peaking above 89% at its worst.

Those readings reflected a combination of peak prices from the pandemic surge and peak mortgage rates from the Bank of Canada's inflation fight. Both hit at the same time, and the result was the most unaffordable housing market in Canadian history.

The eight quarters of improvement since then represent real, meaningful relief. But they started from a baseline so extreme that closing half the gap still leaves you at a historically stressed level.

‍

What Is Driving the Gains

Three things have been working simultaneously to pull the affordability index in the right direction.

The Bank of Canada's rate cuts are the most visible driver. The overnight rate is now at 2.25%, down from the 5% peak. Lower benchmark rates have reduced the qualifying stress test threshold and lowered carrying costs for variable-rate borrowers. In Q4 2025, the five-year benchmark rate fell another four basis points, contributing to the quarter's improvement.

Income growth has actually been the larger contributor recently. Median household incomes rose 0.8% in Q4 2025, double the rate at which home prices rose that quarter. NBF explicitly noted that income gains contributed more to the quarter's improvement than interest rate changes. That is a structural shift, and a healthier one, because rate-driven improvements can reverse quickly if rates rise again, whereas income growth is more durable.

Home prices have not crashed, but they have stopped climbing in the markets that drove the worst of the affordability crisis. The national MLS Home Price Index was down 4.9% year-over-year in January 2026, with the steepest declines in Ontario and BC. Flat-to-declining prices give income growth a chance to close the gap, which is exactly what has been happening.

‍

A Word of Caution on the Numbers

The NBF data is the most rigorous affordability index available in Canada, but Better Dwelling's analysis of the Q4 2025 report flags something worth understanding.

A portion of the income improvement appears to be driven by composition changes rather than real income gains for existing residents. As Canada's non-permanent resident population has declined sharply, there are fewer young adults, who tend to earn lower wages, in the statistical pool. This mechanically lifts the median income figure without necessarily improving the financial position of the people trying to buy homes. The demographic shift is real, but it may not translate into a material improvement for a buyer who was already priced out.

Similarly, the national improvements are heavily weighted toward Vancouver and Toronto, the markets that were most severely stretched and have since seen the largest corrections. Markets like Quebec City and Ottawa, which were more modestly priced to begin with, have actually seen affordability erode slightly. The national number aggregates these diverging trends into a single figure that may not reflect conditions in any specific market where you are actually trying to buy.

‍

Where Things Stand City by City

The city-level data is more illuminating than the national figure.

Vancouver has improved the most in absolute terms. A typical mortgage there now requires 85% of the median household income, down from the 103.9% peak in Q4 2023. That 19-point improvement is dramatic. But 85% is still 19.6 points above Vancouver's own long-term historical average of 65.4%, and roughly three times the 30% affordability threshold. Vancouver is better than its worst, but it is not close to normal.

Toronto has followed a similar pattern, with a mortgage now taking 69.8% of median income, down 19.6 points over the eight-quarter improvement streak. Its historical average is 54.2%. So Toronto is also better than it was, still above its own norm, and still unaffordable by any conventional measure.

Calgary is the outlier that actually looks close to normal. At 39.3% of median income, it sits just 3.3 points above its historical average of 36%. By NBF's metrics, Calgary is nearly within reach of where it has historically been. That gap has narrowed to the point where a modest further improvement could bring it to historical norms. That is a meaningfully different situation from Vancouver and Toronto.

The gap between these cities is widening, not narrowing. Buyers who have flexibility about where they live face a genuinely different calculus depending on which market they are considering.

‍

What Would Actually Make It Affordable

The 30% threshold is a useful benchmark. It does not mean everything below 30% is easy and everything above is impossible, but it gives a sense of where you are relative to a sustainable standard.

Nationally, getting from 51.6% back to 40.5% (the long-term average) would require some combination of lower prices, lower rates, and higher incomes. Getting to the 30% threshold would require a much larger shift, one that no credible forecast suggests is coming.

CREA forecasts the national average home price will rise 2.8% to $698,881 in 2026. Prices are not heading toward affordability; they are forecast to keep rising, just more slowly than in past cycles. The current improvement in affordability has been driven by rate cuts and income growth against a backdrop of flat-to-declining prices in certain markets. If prices resume climbing even modestly, the gains in affordability could stall or reverse.

The Bank of Canada has signaled that rates are likely near their floor. There is limited scope for the rate cuts that drove much of the improvement to continue at the same pace. Mortgage rates cutting from 5% to 2.25% is a once-in-a-cycle event. The next 2.25 points does not exist.

That leaves income growth as the primary remaining lever, and income growth meaningful enough to close a 20-plus point affordability gap would need to be sustained over years, not quarters.

‍

What This Means for Buyers Right Now

If you are sitting on the sidelines waiting for affordability to return to pre-2020 levels nationally, you are likely waiting a long time. The structural drivers of that environment, low rates, fast income growth relative to prices, and moderate home price appreciation, are not all aligned in the same direction right now.

But that does not mean buying is irrational. Calgary and several Prairie and Atlantic markets are close to historical norms by the NBF measure. In those markets, the affordability math has genuinely improved to a point where it is defensible for buyers who have the down payment and income to qualify.

In Vancouver and Toronto, the conversation is more honest: you are paying a significant premium over historical norms, and that premium is unlikely to disappear within a time horizon that matters for most buyers. The question there is whether you can afford the payment, not whether it is cheap by historical standards, because it is not.

The eight-quarter streak of improvement is real progress. It is worth recognizing because the direction matters, and reversals are possible. But progress from the worst affordability readings in Canadian history, at the fastest pace ever recorded, still leaves most buyers in most major markets paying more relative to income than the long-term average would suggest is normal.

‍

That is where things stand. Better. Not good. And for most Canadians, still out of reach.