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The Royal Bank of Canada says the ability of Canadians to keep up with housing costs has been improving of late, but warns that’s about to change.

Houses became slightly more affordable for the average Canadian towards the end of last year, according to Royal Bank of Canada.

That marks a reversal. Housing affordability deteriorated during both the second and third quarters of 2013. While mortgage carrying costs continued to tick up in the fourth quarter, the rising cost of home ownership was more than offset by the pace of growth in household incomes, RBC's economics department says in its latest housing affordability report.

"The relative strength in income gains in Canada offset the minor increase in home-ownership costs in the final months of 2013, meaning that homes were more affordable for those looking to buy," Royal Bank chief economist Craig Wright stated in a press release.

RBC looks at the proportion of pretax household income that goes towards owning a home at current market prices. Its measures for detached bungalows and two-storey houses each eased by 0.2 percentage points (to 43.1 per cent and 48.7 per cent respectively), while the measure for condos fell by 0.1 percentage points to 28 per cent.

But the bank expects that longer-term interest rates will rise modestly this year, and "the costs of owning a home at market value will gradually outpace household incomes by late-2014, leading to increasingly strained affordability in several markets across Canada, much like the current trend in Toronto." Banks often increase their mortgage rates in tandem with five-year bond yields, which are the longer-term interest rates RBC is referring to.

"While we expect the Bank of Canada to leave its overnight rate unchanged in 2014, we forecast an upward drift in bond yields – the main driver of fixed mortgage rates – ahead of what is likely to be a gradual pace of policy tightening by both the Fed and the Bank of Canada," Mr. Wright stated.

Toronto saw its affordability measure worsen, rising by 0.1 percentage points to 55.6 per cent during the fourth quarter. Edmonton's similarly rose by 0.1 percentage points, to 33.3 per cent.

Vancouver's, on the other hand, fell 2.3 percentage points from the third quarter, to 81.6 per cent, Ottawa's edged down 0.4 percentage points to 36.7 per cent and Calgary's down 0.2 percentage points to 33.8 per cent. Montreal's was unchanged at 38.8 per cent.