Housing affordability reached its best level since the last quarter of 2001 as falling mortgage rates gave an already hot Canadian housing market an added boost, according to new report released Wednesday by RBC Economics.

RBC’s Housing Affordability Index, which measures the proportion of pre-tax household income needed to service the costs of owning a home, fell to 31.3% in the second quarter of 2003 from 32.1% in the previous quarter. This translates into $1,237 in average monthly ownership costs in Canada, ranging from a low of $901 in the Atlantic region to a high of $1,570 in British Columbia.

“The easing of the intense pricing pressure that dominated housing markets last year, combined with the lowest mortgage rates in over 45 years, gave the hot housing market an added impetus,” said Carl Gomez, RBC economist.

“But housing activity is showing signs of coming off its peak. Regional conditions are becoming more varied and in some markets much of the potential demand for housing has been met. This suggests a return to more balanced market conditions and as a result, more moderate pricing growth going forward,” he added.

Less intense pricing pressure along with rising but still historically low borrowing costs are expected to keep housing affordability at healthy levels for much of the year. As such, RBC notes that housing activity will remain at elevated levels and therefore continue to be a source of strength for the Canadian economy in 2003.

According to the report, the Atlantic and Pacific coasts once again witnessed extremes in affordability. Atlantic Canada remained the most affordable region with an Affordability Index of 26%; British Columbia remained the least affordable with its index at 41.2%. The greatest improvement in affordability compared to the previous quarter was in Quebec, which went from 30.5 last quarter to 29.1%, the best level it has experienced since 2001.

RBC’s Affordability Index in Canada’s three largest cities breaks down as follows for the second quarter of 2003: Vancouver (44.3%), Toronto (37.3%) and Montreal (29%).