The latest Housing Trends and Affordability Report from RBC Economics found that the Canadian home ownership dream became slightly less affordable in the fourth quarter of 2014. Between November and December of last year, resale activity fell 5.6 per cent, the sharpest month-over-month decline recorded in four and a half years.

According to the report, housing markets in Vancouver and Toronto remain the least affordable, skewing national affordability data results.

“We are watching Toronto pretty closely as it’s a market that time and time again shows deteriorating affordability – indicating that owning a home in the area, especially a single detached, is a stretch for many local homebuyers,” says Craig Wright, senior vice-president and chief economist, RBC. “While we’ve seen some improvements over the past couple of years, Vancouver still takes the top spot for the least affordable market in Canada.”

At the beginning of 2015, national resale activity fell an additional 3.1 per cent, which RBC attributes to a sharp drop in oil prices affecting consumer confidence.

Despite a trend of diminished affordability across the country, RBC expresses optimism about the near future of the Canadian housing market. The recent Bank of Canada interest rate cut, which prompted fixed and variable mortgage rate reductions, is expected to improve nationwide affordability in the short-term.

“With limited upward pressure on prices in most local markets, lower interest rates should have a positive effect on affordability,” says Wright. “By 2016 however, we expect the BoC will reverse course and begin to normalize monetary policy – any rise in interest rates would threaten to erode affordability conditions and weigh on homebuyer demand in Canada.”