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Canadian Real Estate Prices Are Growing Over 10x The Rate of Incomes

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Canada has never seen anything like the current residential real estate market. Indeed, affordability is often a problem at the peak of the real estate cycle. However, the difference between home prices and disposable income was not that big. House prices are consistently above the wages of this generation and have not slowed. The gap is actually accelerating, and home prices are now rising more than 10 times the income rate.

Canada real estate prices are 18 times higher than in 1975

Canada’s residential real estate prices have recently skyrocketed in tremendous amounts. Home prices rose 5.7% in the fourth quarter of 2021, with annual growth of 25.1% in 2021. Prices have risen 36.1% since the first quarter of 2020, highlighting recent growth. The already rapid growth rate in 2020 was only a small share of the rise over the last two years. Annual growth finally reached this rate in the early 1980s, the last inflation crisis. Most of the oldest millennials, now over 40, weren’t born at this point.

Canadian Home Prices and Household Income

Index values ​​for Canadian residential real estate prices and household disposable income.

Source: US Federal Reserve; Better Housing.

Long-term growth can be impressive or frightening, depending on who you are now. Home prices in Canada rose 219.5% from 2005 to the end of 2021. Since 1975, home prices have risen 1,804.9% in the same quarter. Yes, home prices are 18 times higher than in 1975.

Disposable income is less than eight times that of 1975

Have Canadian wages caught up with this rapid growth? far cry. Disposable income fell 1.2% in the fourth quarter of 2021, and the annual growth rate in 2021 fell to 2.4%. What about the surge in disposable income policy makers that we were proud of in 2020? Since 2020, disposable income has risen by only 7.4%, slightly above inflation over the past year. Wages have barely caught up with inflation and can touch home prices.

Canada’s Home Prices and Household Income Growth

Annual growth rate of Canadian residential real estate prices and household disposable income.

Source: US Federal Reserve; Better Housing.

Long-term wage growth was disappointing, to say the least, but it’s a recent phenomenon. Disposable income increased by 79.1% from 2005 to the fourth quarter of 2021 and increased by 789.3% since 1975. More frankly, 90% of wage increases over the last 46 years have been from the first 65% of that period. The remaining 35% was only 10% of total growth. Significant stagnation of household income or significant inflation of assets. Dealer selection.

Annual home price growth is 10 times higher than disposable income

It’s mostly a recent phenomenon that home prices are well above income. Since 1975, rising house prices have outpaced income by 2.28 times. This is a large amount of money. Using a shorter timeline, it has grown about 2.77 times faster since 2005. The shorter the number and the higher the number for the more recent period, the faster it means. In case that point wasn’t completely clear.

House price growth over the past year has been even greater, rising to 10.5 times disposable income. Almost three times the growth is already enough to undermine the progress of generations. However, most of this gap is a relatively new phenomenon, occurring much faster today. This is a useful animation for anyone who needs visuals for the last few years.

Home prices in Canada have never exceeded income. The country continues to introduce increased leverage to support such large growth with a small income. This may be a new paradigm, as this has never been seen before. Also, thinking that a new paradigm has hit, when it wasn’t really the case, is literally one of the phases of the bubble.

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