The question of whether Canada's housing market is a bubble or not hinges on how affordable it is to buy a home.

Gulp. Rising home prices and mortgage rates suggest trouble ahead, but that's only half the problem. Bubble or not, houses are being priced out of reach for first-time buyers and households with income levels at or even a little above average. It may be time to redefine what we mean when we say houses are affordable.

Affordability hardly seems a problem when you look at home sales. The Canadian Real Estate Association reported on Monday that sales were down 2.6 per cent in May on a year-over-year basis, but prices were up 3.7 per cent. The numbers were strong enough that the association increased its sales forecast for 2013.

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And yet, there is clearly some stress on affordability, which is reported on in depth by Royal Bank of Canada's economists every three months. As RBC points out in each report, lenders typically qualify borrowers by checking whether mortgage payments, property taxes and heating costs account for no more than 32 per cent of gross household income. In the first quarter of 2013, this package of housing costs consumed a low of 30.4 per cent of average household income in Edmonton for a detached bungalow and a high of 82.3 per cent in Vancouver. Nationally, housing costs ate up 42.5 per cent of the average household's income.

Looking for a house in the city, Mr. and Ms. Average Canadian? Perhaps a condo is more realistic, or a nice rental. "Households in the middle of the income distribution would not meet the guidelines of 32 per cent for a bungalow," said RBC senior economist Robert Hogue.

The condo market is comfortably affordable on a national basis, with 28.1 per cent of the average household's income consumed by housing costs. But two-storey houses were at 48 per cent nationally, with Vancouver coming in at 87.2 per cent, Toronto at 62.7 per cent and Edmonton, the most affordable of the six cities measured by RBC, at 34.4 per cent.

Bungalows, the middle path between condos and two-storey homes, are above long-term average affordability levels, but apparently not critical. "We found that when [bungalow] affordability gets above 44.5 per cent, it's usually followed by a housing price correction of 5 per cent or more," RBC chief economist Craig Wright said.

Truth is, affordability hasn't changed much at all in recent years. Individual cities like Vancouver and Toronto are well above their long-term averages, but those averages themselves are way above 32 per cent. In Toronto, for example, the average-priced bungalow has eaten up 48.7 per cent of gross household income on average since RBC started measuring affordability back in 1985; the comparable recent number is 53.8 per cent.

Affordability hasn't worsened dramatically in recent years because low interest rates have offset rising house prices. More of the mortgage rate increases we saw last week would threaten this balance, and so would the price increases many cities saw in May. But let's put that aside for the moment because the existing state of affordability is tenuous enough already.

RBC's data show that to qualify to buy the average-priced two-storey home in Toronto and Vancouver in the first quarter, a couple would need gross annual household income of $132,100 and $156,200, respectively. Ottawa's not far behind at $92,500, while the national number was $87,800.

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A handy measuring stick for income levels is Statistics Canada's annual income of Canadians report, which shows a median level of $84,410 for two-parent families with kids in 2010, the most recent year for which there's data. Over all, the median level of household income was $64,900, which is well short of what RBC says is necessary to buy the average bungalow on a Canada-wide basis.

It's not just households of average means or less who have affordability issues. Young adults just starting out in the work force are having trouble finding jobs with sufficient salary to pay back their student loans and move out of their parents' home, never mind buy a house in a major city. Smaller communities are more affordable, but they're not usually where the jobs are.

RBC's affordability numbers look somewhat harsher than you'll find in real life because they use posted five-year mortgage rates, not the much cheaper discounted rates that most people pay. On the other hand, RBC projects a down payment of 25 per cent, which is difficult to save in most bigger cities. The lower your down payment, the bigger your mortgage.

None of this changes the fact that at today's price levels, houses are evolving into a luxury item in some cities. With the recent increases in both prices and mortgage rates, houses become even more out of reach. The answer to declining affordability just might be the big price decline everyone's afraid of.

How affordable is housing?

For more personal finance coverage, follow Rob Carrick on Twitter (@rcarrick) and Facebook (robcarrickfinance).

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Royal Bank of Canada's housing affordability measure takes a quarterly look at what percentage of median pre-tax household income is needed to pay the cost of a mortgage on an average-priced detached bungalow, plus property taxes and utilities. Lenders deem a house to be affordable if the associated costs account for no more than 32 per cent of the borrower's gross income. Here are affordability numbers from the first quarter of 2013.