The U.S. Federal Reserve considers both Canada and the U.S. to be in real estate bubbles but they’re even close to the same issue. Here’s why.
This post by Lorimer Wilson, Managing Editor of munKNEE.com, is an edited ([ ]) and abridged (…) excerpt from an article by Stephen Punwasi, for the sake of clarity and brevity to provide you with a fast and easy read. Please note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
As of Q2 2021, Canada has seen real home prices rise 139% since 2005 while the U.S. has only seen real home prices rise 10% over the same period. Canadian home prices have seen 13x the growth of American homes over the same period. Prior to 2005, they had charted a similar path, before disconnecting.
Canadian Incomes Grew Faster, But Not Enough To Justify Home Price Growth
Canadian incomes must have grown much faster than American incomes over that period, right? As of Q2 2021, Canadian real disposable incomes increased by 46% from 2005 while, in the U.S., incomes increased only 10% over the same period, so Canada grew faster – but not nearly enough to justify the gap between home prices and incomes.
Canada’s Gap Between Home Prices And Incomes Looks Ridiculous Beside The US
It’s hard to appreciate those stats, so let’s combine them to show how wacky they are. Home prices in Canada advanced 64% faster than disposable income in the country, from 2005 to Q2 2021. In the U.S., incomes advanced 16% faster than home prices. Homes are developing a significant premium in contrast to labor in Canada. In the US, it’s the opposite.
Now, back to the Fed’s exuberance index showing that both Canada and U.S. real estate are in bubbles. That might be true, but it’s not even close to the same issue. Americans are trying to avoid disposable income from turning into non-productive shelter costs. In Canada, that ship sailed a long time ago. Now shelter costs and a lack of productive investment is forecast to make it one of the worst performing countries in the OECD for the next 40 years.
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The United States and Canada are huge nations geographically and they culturally are diverse within themselves. I own rural land in Nova Scotia that hasn’t grown in value since 1990. But some houses in southern Ontario have doubled in price over the past two or three years. In the United States, California is becoming so pricey that people must leave … for places like southwestern Virginia which live in poverty and prices don’t move.
Peasants in Central America can build their own houses and live in them, fully paid for and tax secure (none). That delivers peace of mind. Millennials in Canada will sign up for life-long killer mortgages and never get that kind of peace, though their accommodations will be much fancier. Different ways of living.