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A house with a sold sign is seen in Toronto on Wednesday, February 15, 2012.Matthew Sherwood

Housing affordability is improving in Canada as home prices soften, while low interest rates through this year should continue to keep costs at bay.

A national measure shows housing became more affordable in the fourth quarter of last year, the second improvement in a row, Royal Bank of Canada's quarterly release showed Wednesday. It found all housing categories became more affordable, led by the two-storey home category.

The measure comes amid a debate over whether some Canadians are overextending themselves by taking out mortgages they can't afford – particularly in hot markets like Toronto and Vancouver. Canadian household debt burdens, meantime, remain a key concern to economists.

The quarterly improvement in affordability was modest, but still enough to "dial back the deterioration that impacted the market in spring last year," said Craig Wright, RBC's chief economist, in the report.

"Continued low interest rates in 2012 will help keep housing costs at bay in the near term."

The erosion of affordability levels in the first half of last year stemmed mostly from dramatic increases in a single market – Vancouver. In the second half of the year, though, this market became more aligned with the rest of Canada.

Vancouver remains – by far – the least affordable large city in Canada to own a detached bungalow. Toronto is next, followed by Montreal.

At this point, housing in Canada is as affordable as it was a year ago, and "only slightly" less affordable on average than it has been over the long term, Mr. Wright noted.

The bank's affordability measure tracks the proportion of pre-tax household income that would be needed to service the costs of owning a home at current market values.

It comes on the same week the Canadian Real Estate Association predicted average home prices will fall 1.1 per cent this year, to an average of $359,100, before rebounding 0.9 per cent in 2013.