Canadian home prices have been growing at a breakneck speed, and incomes aren't even close to keeping up. Organisation for Economic Co-operation and Development (OECD) numbers show Canada topped the house price-to-income index. House Price-to-Income Ratio Definition The house price to income ratio is a basic affordability measure, to see if incomes are keeping up. To get the ratio, they take the cost of a median home, and compare it to median income. - The lower the ratio, the better income growth is doing relative to house price growth.
- The higher the ratio, the worse income is doing compared to house price growth.
Lower ratios are more likely to support home prices, since incomes can more easily carry them. Generally high ratios are only seen in bubbles and developing nations. House Price-to-Income Ratio Methodology Reading the index put out by the OECD needs a quick explainer, because it's not a straight ratio. - The index is set at 100 for 2015, not the actual ratio. They're assuming that 2015 was a generally accepted normal year. The increase or decline is relative to that year. For example,
- if the index hits 120, it means home prices grew 20% faster than income from that period.
- If it drops to 90, it means incomes grew 10% faster than home prices (or home prices fell) from that year.
House Price-to-Income Ratio Ranking of OECD Countries Canada's house price-to-income ratio is the highest in the world ? by a large margin. Country | Q4 2018 |
---|
Canada | 122.91 | Portugal | 117.7 | Slovenia | 116.22 | Netherlands | 116.18 | Ireland | 115.85 | New Zealand | 114.86 | Spain | 113.94 | Czech Rep. | 113.3 | Austria | 112.3 | Luxembourg | 110.68 | U.S. | 109.16 | Slovak Rep. | 108.66 | Germany | 107.95 | UK | 107.82 | Hungary | 107.77 | OECD - Total | 106.23 | Australia | 106.09 | Switzerland | 105.82 | Norway | 105.34 | Sweden | 104.96 | Euro area | 104.31 | Denmark | 102.26 | Latvia | 102.04 | Japan | 101.8 | Chile | 101.36 | Belgium | 100.81 | France | 100.28 | Greece | 95.84 | Poland | 95.71 | Finland | 95.26 | Lithuania | 94.67 | Estonia | 94.23 | Korea | 92.76 | Italy | 92.3 |
Source: OECD, Better Dwelling. For context, the U.S. is at 109.16, which means the gap between housing and income grew at 40% of the rate of Canada. The UK, which is being called a ?bubble on a bubble,? sat at 107.82. There's undeniably a lot of home price growth in Canada, or relative income stagnation ? your pick. Canada House Price-to-Income Change The good news is Canada's ratio has begun to stall. In Q4 2018, the ratio only grew 0.02% from the quarter previous. Bottom Line Canada's gap between home price and income growth dwarfs any other developed country. Over the past 3 years, Canadians have seen prices soar over 20% faster than incomes have been able to grow. Home price growth is cooling in the first quarter of 2019, likely to bring the ratio down in the next report. However, it's still a pretty big gap created over the past few years. Editor's Note: The above excerpts* from the original article have been edited ([ ]) and abridged (?) for the sake of clarity and brevity. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.Scroll to very bottom of page & add your comments on this article. We want to share what you have to say! (*The author's views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.) "Follow the munKNEE" via Twitter and/or Facebook and have your say. Shock us, surprise us, inform us, entertain us. Here's your opportunity to start a dialogue. Our Twitter & Facebook feeds are also the most comprehensive resources of the very best-of-the-best financial, economic, investment and gold/silver articles out there. Mark them as your favorites and get access to every article as posted. Related Articles from the munKNEE Vault: 1. Cross-Border Comparison Of Best & Worst Cities For Housing Affordability ? How Does Your City Fare? A recent study examined home affordability relative to incomes and found that Canada's largest markets rank just as highly as the hottest ones in the U.S.. Check out the infographic below to see how U.S. and Canadian markets rank. 2. Warning: The CMHC Thinks Canadian Real Estate Is Highly Overvalued Every quarter the Canada Mortgage and Housing Corporation (CMHC), the Crown agency in charge of Canadian housing research, publish a report on how real estate fundamentals (interest rates, disposable income, and price acceleration) are looking. They then publish a color graded warning system for real estate. Here's what they had to say about the country's largest markets. 3. Canada's Financial Condition Much Worse Than That Of the U.S.: A Comparison In 5 Revealing Charts On a real basis, Canadian housing prices experienced a much smaller, shorter decrease in prices during the financial crisis and a much larger, longer increase in prices during the recovery. When you couple this unfathomable rise in housing prices with near-record high household debt-to-income ratios, the Canadian housing bubble starts to look scary should the tide turn. No one knows when insanity like this will come to an end. Bubbles are like an avalanche", the longer they build up, the worse they will be when they eventually destabilize but it most likely will be the result of higher rates The post Which Country Has the Highest House Price-to-Income Ratio? appeared first on munKNEE.com. |