Canadian and American real estate prices are both at frothy valuations, but look nothing alike. US Federal Reserve (The Fed) data shows home prices grew faster than incomes in Q2 2021 for both countries. The difference is, this has been a long-term trend for Canada since 2005. Meanwhile in the US, home prices have only recently begun to outpace growth. Contrasted, the gap between home prices and incomes in Canada is comically large when compared to the US.
Canadian Home Prices Have Grown 13x Faster Than In The US
The US Federal Reserve considers both Canada and the US in a real estate bubble, but they’re really not the same. As of Q2 2021, Canada has seen real home prices rise 139% since 2005. In contrast, the US has only seen real home prices rise 10% over the same period. Canadian home prices have seen 13x the growth of the US 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 US incomes over that period, right? As of Q2 2021, Canadian real disposable incomes increased by 46% from 2005. In the US, incomes increased only 10% over the same period, so Canada grew faster. However, 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 US, 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. Charting both trends together highlights how absurd the situation in Canada has become.
Canadian and American Real Estate Prices Vs Disposable Income
The indexed growth of Canadian and American real estate prices and disposable incomes, in real terms (2005 = 100).
Source: US Federal Reserve; Better Dwelling.
Now, back to the Fed’s exuberance index showing both Canada and US 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. At least there was no housing crash, right?