Housing affordability in Canada ended last year at its lowest level since 1990, Royal Bank said Friday.

In its quarterly outlook on the cost of owning a home, the bank said affordability eroded in every quarter of 2007 as house prices rose on the strength of the economy and job growth.

  Percentage of household income needed to afford a detached bungalow
  
 Vancouver  74%
 Toronto  47%
 Calgary  42%
 Montreal  37%
 Ottawa  32%
 Source: Royal Bank

RBC assistant chief economist Derek Holt said the home affordability deterioration back in 1990 was driven by soaring interest rates and a recession.

During the fourth quarter of last year, housing affordability in four classes — condominium, townhomes, detached bungalows and two-storey homes — fell across the country, except in the cooling Alberta market.

In Alberta, average prices in all four classes dropped in the October-December quarter, improving affordability.

RBC's affordability study measures how much of pre-tax household income is necessary to carry the cost of owning a home.

Condos most affordable

Nationally, the standard condo remained the most affordable housing type, requiring about 30 per cent of pre-tax household income. A standard townhouse was next at 34.5 per cent, followed by a detached bungalow at 42.5 per cent while a standard two-storey home required 48 per cent.

Rising fixed mortgage rates continue to push up home-ownership costs, but RBC said it sees some improvement on the horizon. The bank said it expects the five-year mortgage rate will drop by three-quarters of a percentage point by the end of 2008.

The bank also said that falling mortgage rates, weakening house price gains and decent income growth should all boost home affordability across most markets.

Holt said new homeowners are taking out longer mortgage amortizations to cope with skyrocketing prices, adding that the 40-year mortgage is now dominating the market.

"We're actually estimating about 60 per cent of mortgage applications in the insured segment are now going for longer amortization products, longer than the traditional cookie-cutter 25-year mortgage," Holt told CBC News.

"And of that share, about half is going into the 40-year mortgage product, and that's an industry-wide figure that's true across most lenders in the marketplace today."