Affordability is not a major problem for the median-income family seeking to buy a detached home in three-quarters of Canada’s housing market or a condo in Toronto, and should not become one even when rates normalize, according to a report from BMO Economics.

Read: Global housing markets still weak

“Nationwide, mortgage payments on the average-priced house consume a moderate 28% of household income – 23% for people living outside Vancouver and Toronto,” says Sal Guatieri, senior economist, BMO Capital Markets. “This matches the long-run norm of 28%, suggesting that rising income and falling mortgage rates have largely offset the deterioration in affordability caused by higher prices.”

Guatieri notes the same cannot be said for Vancouver, Toronto and Victoria.

“A typical family striving to purchase a single-family house in Vancouver would have to spend four-fifths of their income on mortgage payments, which explains why they can only dream of buying a detached house in Vancouver,” he says, adding that “in Toronto, a hefty 43% of median income is required to service a mortgage on an average single-family home, up from 40% eight years ago.”

Read: Canadian housing to hold steady in 2013

Guatieri notes these cities are vulnerable to a material correction if income or rates move adversely. He also says that while affordability may not be a big problem for most of the country, policymakers should remain vigilant. “Elevated valuations, combined with record household debts, could prove troublesome in the event of a recession or interest rate shock.”

He still expects concerns over a national housing bubble should begin to deflate. “If interest rates remain low, income continues to rise, and prices stabilize this year — as we anticipate — fears of a deep housing correction should recede.”

Read: Canadian housing continues to cool