Canada has never seen anything like the current residential real estate market. Sure, affordability is often a problem at the peak of a real estate cycle. However, the gap between home prices and disposable incomes has never been this wide. Home prices have persistently outpaced wages for this generation, and it’s not slowing. The gap is actually accelerating, with home prices now rising over 10x the rate of income.
Canadian Real Estate Prices Are 18x Higher Than They Were In 1975
Canadian residential real estate prices have surged a mind-blowing amount recently. Home prices grew 5.7% in Q4 2021, bringing annual growth to 25.1% for 2021. Prices are up 36.1% since Q1 2020, highlighting recent growth. The already breakneck speed of 2020 was just a modest share of the climb over the past two years. Annual growth last hit this rate in the early 1980s during the last inflation crisis. Most Millennials, the oldest now over 40 years old, hadn’t even been born at this point.
Canadian Home Prices and Household Income
The indexed value of residential real estate prices and household disposable income in Canada.
Source: US Federal Reserve; Better Dwelling.
Long-term growth is impressive or horrifying, depending on who you are right now. Canadian home prices grew 219.5% from 2005 to the end of 2021. Since 1975, home prices increased 1,804.9% ending the same quarter. Yes, home prices are 18x higher than they were back in 1975.
Disposable Income Is Less Than 8x What It Was In 1975
Have Canadian wages kept pace with this rapid growth? Not even close. Disposable income fell 1.2% in Q4 2021, dragging annual growth to 2.4% for 2021. What about that surge of disposable income policymakers bragged about in 2020? Since 2020, disposable income has only climbed 7.4%, just a little more than inflation over the past year. Wages are barely keeping up with inflation, never mind even touching home prices.
Canadian Home Prices and Household Income Growth
The annual growth of residential real estate prices and household disposable income in Canada.
Source: US Federal Reserve; Better Dwelling.
Long-term wage growth has been disappointing, to say the least, but it’s more of a recent phenomenon. Disposable income grew 79.1% from 2005 to Q4 2021, and 789.3% since 1975. More bluntly put, 90% of wage growth in the past 46 years came from the first 65% of that period. The remaining 35% only resulted in 10% of total growth. The Great Stagnation of Household Income or A Great Inflation of Asset Wealth. Dealer’s choice.
Annual Home Price Growth Is 10x Disposable Income Growth
Home prices greatly outpacing income is mostly a recent phenomenon. Since 1975 home price growth has outpaced income by 2.28x — a hefty amount. If we use a shorter timeline, it’s been growing roughly 2.77x faster since 2005. A larger number for a shorter and more recent period means acceleration. Just in case that point hadn’t been totally clear.
Home price growth over the past year has been even greater, rising to 10.5x disposable income growth. Having nearly 3x growth is already enough to cripple a generation’s progress. But most of this gap is a relatively new phenomenon, and happening much faster today. Here’s a convenient animation for those that need a visual of the past few years.
Home prices have never outpaced incomes for as long as they have in Canada. The country keeps introducing leverage increases to support such large growth with tiny incomes. This might be a new paradigm since this has never before been seen. It’s also literally one of the phases of a bubble to think a new paradigm has been hit, when in fact it wasn’t.
How is this sustainable?
it is not. any questions?
I feel bad for young people.
They will enter an age where AI will remove many of the entry level jobs which used to be for downpayments to a home in the 1970s, while they pay sky high rents where they can’t save a penny for a downpayment.
This is the exact same thing that happened with Beanie Babies in the 1990’s. They went from being a fun toy, to a financial investment that people flipped for big money.
It’s a house of cards.
As long as money launderers keep coming to Canada things will not change drastically.
We are one of the only countries left in the world we’re criminals want to park their money because our laws are so weak.
The government must crack down heavily on money laundering.
They clearly will never stop it because they are financially profiting from this reputation. The population is one of the most complacent in the world with low social cohesion due to lack of a shared identity and culture, so the authorities will never be challenged. Look at how quickly people forgot about how the recent protests have been dealt with. There is no future for the youth here.
Residential real estate,especially in Canada,is in a huge bubble. Sooner or later it will pop. When that happens, it will cause some pain ,but in the longer run it will be better,more fair,and good for the economy. Some mitigation may be desirable but not too much.
I have been living in the states and Canada part time for over 33 years. We can tell when people will run out of money . If you put 400K down for a million dollar house and people can not continue to pay for it, then great, they are definitely going to be homeless. These homes are not officially owned by people which is the ridiculous part compared to many people in the states. The banks own them and will try to keep them empty. Does that sound like the place you want to live in Canada?
Cheaper my ass. Add utilities, taxes and maintenance and tell me again owning a home is cheaper than renting.
How generous of landlords to pay all of those things for their tenants and not pass it on.
My home’s worth about $2.2 million in Toronto and my mortgage is still $1,000/month. You’d have to be a clown to think paying $8k/month for my relatively modest home to buy into the worst paid tech hub in North America (TM).
Hello. I tried to subscribe for newsletter, but got the “Did not pass check” message 3 times.
Once the point is reached, and it has, that all home owners bake the value of their house into their financial retirement plans, all of those people will oppose any government action to drive down the price of houses.
The only solution is to let the markets decide. Any politician who tells you that they can fix the problem is only courting votes.
With 1,400,000 million vacant homes in Canada its time to start taxing them much more. Give them one year to either sell or rent then tax them 50% of the homes value.
That will solve the vacant homes issue and put lots of supply back on the market.
We don’t need these money launderers and non residents hoarding all this supply in Canada.
World Economic Forum stated
‘You will own nothing’
Yeah, this tracks.
Reference :
https://archive.org/details/8-predictions-for-the-world-in-2030