Housing affordability continues to slump in an overvalued real estate market
Canada has one of the highest house price-to-income ratios out of 38 developed countries, according to the latest index from the Organisation for Economic Co-operation and Development (OECD).
To level the playing field, the OECD set the starting point of 2015 at 100, and the indexed value exhibits the change that occurs from that period onward. An increased index means faster price growth, while a decreased index means faster income growth.
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In Canada, it’s no surprise that real estate prices have been soaring over recent years, but the ratio index reached a shocking 141.9 in Q4 2021. This translates to house prices growing at a rate 41.9% faster than incomes since 2015, creating an overvalued real estate market. Even further back, house prices have more than doubled the pace of income growth since 2000.
By comparison, the US ratio index reached 130.5 in Q4 2021. There, house prices have grown 30.5% faster than incomes since 2015, but only 23.1% since 2000.
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OECD explained that Canadian prices have been outpacing incomes 10 times faster than the US since 2015 and almost five times faster than the US since 2000. Housing affordability continues to slump as the ratio index increases in number.
The only member country of the OECD with a higher ratio than Canada is the Netherlands, climbing to 148.3 in Q4 2021. However, Canada is still confronted with a graver situation given that the Netherlands is a small economy and is therefore more prone to sharp fluctuations.