Discrepancy Between Real Estate Prices In Canada and Average Incomes Continues to Expand

Published April 18, 2022 by Real Estate Leads

It’s understood as common knowledge that young people starting their careers these days will not have it as easy as their parents’ generation did, and that certainly applies to being able to afford a home in Canada too. Or at least one that’s not a 600 sq. feet or less and in the sky when they may have already started or a family or are planning to in the near future. We do need to keep in mind that we are living in a time of unprecedented and disruptive change in both the world and our country, but it is somewhat staggering just how disconnected the price of real estate has become from what people earn.

And that’s fair to say even for people who make good money doing whatever it is they do for a living. There are plenty of people under the age of 30 who have already established well-paying careers that cannot afford any type of home in Vancouver, Toronto, Montreal, or even Halifax now. The prices for housing in Canada are being pushed up all over the country now, and many people who would have been working with a realtor if they were at this time of their life a couple of decades earlier (or less even) are now doing nothing of the sort.

This is something that resonates with us here at Real Estate Leads. While our online real estate lead generation system is ideally for helping realtors with that shortfall of would-be clients due to this current global housing unaffordability trend, it is more of a associative thing when it comes to our understanding of the factors that are creating such a gap between house prices and incomes in Canada.

It is something we touch on regularly, but let’s use this week’s entry to really crunch some of the numbers and other very relevant information for anyone who wants a better understanding of why housing has become so staggeringly unaffordable.

18x Higher Over Course of 40 Years

Average house prices in Canada today in 2022 are just over 18 times higher than they were in 1975. While that IS a long time ago, that type of growth is not seen in any other industry or any other consumer commodity AT all across that 40+ years and it highlights how entirely unnatural that is.

Consider as well that Canadian home prices grew 5.7% in Q4 2021, bringing annual growth to 25.1% for 2021. But since Q1 2020 those same prices are up 36% Annual growth last hit this rate in the early 1980s during the last inflation crisis. Which of course is interesting considering that inflation is taking off in North America and higher interest rates may be poised to put the pinch on over-leveraged homeowners the same way the whole situation did in the 1980s.

Take a look – any look – indexed value of residential real estate prices and household disposable income in Canada and you’ll see exactly what is being laid out here, and it doesn’t look very promising for anyone who hasn’t had the means of buying a home up until now.

Let’s look at it from other angles too. Canadian home prices grew 219.5% from 2005 to the end of 2021. That is a fairly slamming figure much like the one from earlier comparing 1975 to now, and we should also remember that Canadians have 8x less disposable income than they did in 1975.

Wages Nowhere Near Keeping Pace

They certainly haven’t. Disposable income fell 1.2% in Q4 2021, which then brought down annual growth to 2.4% for 2021. And since 2020, disposable income has only climbed 7.4%, with that promising to be swallowed up by inflation here in very short order. Wages are barely keeping up with inflation, and any increased come nowhere close to touching skyrocketing home prices and values for homes that are not supported at all by the quality of the home, its size, or in some cases its location.

Long-term wage growth is equally a part of the problem when it comes to fewer and fewer people being legitimately able to afford a home that suits them. And this is very much a recent phenomenon, as is how home prices are greatly outpacing income. Home price growth over the past year has been even greater, rising to 10.5x disposable income growth.

The speed with which this is happening should be more of a concern than the simple fact IT IS happening, and the rapidity with which more and more people are priced out of being homeowners is something that decision-makers at the federal level are really going to have to dig into and try to come up with some sort of solution. One that will put a very essential part of people’s lives and personal / family growth back into the realm of possibility when they are doing just fine with their career and making what should be considered good money.


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