Weaker home prices and lower borrowing costs are attracting buyers back into the housing market, according to a report Wednesday by RBC Economics.

“Declining costs of home ownership during the last year were driven by significant cuts in mortgage rates along with the federal government taking an active role in supporting the mortgage securities market,” RBC said. “In the first quarter, monthly payments on a typical detached bungalow in Canada had decreased by close to 17% from a year earlier.”

The average cost to own a bungalow in this year’s first quarter was $1,350 a month, down from $1,520 in 2008’s fourth quarter and $1,620 in last year’s first quarter.

RBC’s affordability index — the percentage of pre-tax monthly household income needed to maintain a home, including mortgage payments, utilities and property taxes — improved across all housing segments in Canada.

The average affordability for a bungalow in the first quarter was 39.4%, down four points from 2008’s fourth quarter. It was 44.7% for a standard two-storey (down five points), and 27.1% for a condominium (down 2.8 points).

The average cost of maintaining a detached bungalow in Vancouver was 62.6% of household income during the first quarter, while in Toronto it was 45.9%, RBC said. Ottawa affordability was 39.1%, Montreal 36.5%, Calgary 35.1%, and Edmonton 34%.

From a provincial standpoint, RBC said housing affordability in British Columbia saw its biggest improvements since 1991, with the percentage of income required for various housing types dropping between 3.4 and 7.4 percentage points during the quarter. In Ontario, RBC said housing sales activity has returned to levels seen in mid-2008, largely as a result of improved affordability.

“With the turmoil in financial markets partially subsiding and the flow of credit increasing, home resale activity has rallied impressively since the late winter,” said Robert Hogue, RBC’s senior economist. “What’s most impressive is how widespread this rebound has been, with all major cities in Canada experiencing a revival.

“With property values stabilizing and the effect of the steep drop in mortgage rates likely behind us, further improvement in affordability will depend on greater gains in family income,” Mr. Hogue added.

“Those gains will be dictated by the speed of the economic recovery expected during the second half of this year.”

The RBC’s assessment follows a separate report this week from real estate agency Royal LePage that said improved housing-market conditions in this year’s second quarter points to a better overall performance in 2009 than previously anticipated.

Also, a number of local markets saw sharp spikes in sales last month, including Toronto, Ottawa and Edmonton, where new sales records were set for June.