Canadian Bank: “Your House Makes More Than You Do,” Draw Your Own Conclusion

One of Canada’s largest banks brought attention to a warning sign in many real estate markets. BMO published a research note titled “Your House Makes More Than You Do,” by senior economist Sal Guatieri. The note focuses on how sustainable and long-term current housing trends are. I’m obviously kidding. It brings attention to the fact home prices are rising faster than the incomes of the people living in them. This is typically a big “red flag,” especially in a weak economy.

Canadian Home Prices Outgrowing Incomes Is A Red Flag 

The brief research note starts by highlighting the risk of rapid asset growth on poor fundamentals. Guatieri mentions, “asset prices start to raise red flags when they consistently outrun growth in underlying income or earnings.” He highlights the issue not by using one of the country’s major markets, like Toronto or Vancouver. No, the region used as an example is Woodstock, a small city in Southern Ontario.

The economists notes, home prices in Woodstock have greatly outpaced household incomes. The benchmark price of a home increased $118,200 in January, compared to a year before. The economist highlights the annual family income is only $86,970 (in 2018, latest data), much lower. The house is literally making more money than the people inside of it. Guatieri doesn’t make a conclusion, instead finishing with “draw your own conclusion.”

Woodstock Benchmark Home Price Change

The 12-month change in price for a composite benchmark home in Woodstock-Ingersoll, Ontario.
Source: CREA, Better Dwelling.

How Does This Stack Up In Other Markets?

Over half of Canada’s major real estate markets appreciated by more than a typical family’s income. CREA data shows 23 markets saw “typical” home prices rise more than the median Canadian family makes. All of the markets are located in Ontario. That said, 33 major markets saw prices appreciate over $50,000 over the past year, or about $4,160/month. It’s worth circling back and emphasizing, this is family income. Excluded are any single person households, which significantly brings down those numbers.

Canadian Real Estate Market Price Increases

The 12-month increase for a benchmark home in Canadian dollars as of January 2021, and the median family income before taxes.
Source: CREA, Better Dwelling.

Canadian real estate prices are detached from income in a few ways. There’s the number of months it takes for a downpayment, and the amount needed to carry a mortgage. Then there’s the issue highlighted today – home prices are rising faster than incomes. Not because of a fast increasing population, or a rapidly growing economy. It’s due entirely to the government’s desire to see household credit expand, in search of rising inflation. As Canadian economists say, “draw your own conclusion.”

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  • Liam 3 years ago

    It’s kind of funny, but also incredibly annoying that people won’t just openly say what a crap show this is.

    • Jason 3 years ago

      It’s because they are over leveraged in the market and that is human nature to defend what their own interests are despite the absurdity of it.

      • Doomcouver 3 years ago

        Yup, Canada has a ~70% ownership rate as well so the vocal majority are heavily incentivized to push the narrative that these prices are normal and sustainable, when it’s quite the opposite. As we all know, there’s also a fairly loud but small group that have been warning people about the risks of a housing market significantly detached from fundamentals, but few have listened and chosen instead to stay invested in the metaphorical casino of Canadian real estate.

        • Paul 3 years ago

          That is a generalized sweeping statement. I wouldn’t call families that are living in their homes people who play at casinos.

          • jeff 3 years ago

            typical response when faced with reality. cannot have an educated discussion.

          • Doomcouver 3 years ago

            Whether or not they’re gambling depends on their primary motivation for paying the price they paid for their house. If it was purely a decision based on wanting the house, and the price (in their mind) is reasonable, then you’re right they’re not gambling. That’s not your average Canadian homebuyer’s psyche though, most homebuyers are primarily accepting these prices because they’re expecting large price gains in the future. If they were expecting price stagnation, or price collapse, they wouldn’t be buying.

        • Simon 3 years ago

          Didn’t they bail out the market last time because it would wipe out too many people? What is to say they won’t do the same again?

      • Stephanie Daye 3 years ago

        exactly… psychology it is the same as holding onto a bad stock .. have a percentage of loss and get out…

  • Will Andrews 3 years ago

    “It’s due entirely to the government’s desire to see household credit expand, in search of rising inflation.”

    Your final point in this article is the big takeaway here. Can you elaborate and “dwell” on this fundamental a little more please. 😉

    • Ethan Wu 3 years ago

      It’s kind of self-explanatory. They’re spending their ass off to prevent a deflationary cycle. No velocity, so they keep printing money to gain some.

      It’s not moving the needle though, so they print more. They’re more worried about a deflationary spiral than asset price inflation. It’s great if you’re positioned to make money, but not so much when we’re looking for liquidity down the road.

      • Doomcouver 3 years ago

        Exactly, the one thing that keeps central bankers up at night is the prospect of deflation. When that happens almost all monetary policy becomes impotent and they can’t do anything but watch the destruction happen.

        A failure to create broad inflation is creating an extremely hazardous overhang on valuations of some asset classes. In Canada, from a high-level, housing and the stock market are the two assets that are at most risk of a severe correction, now more than ever. If that happens then the deflationary spiral will begin, and we’ll all be screwed for a half-decade or more.

    • Gavin 3 years ago

      Essentially, the value of the dollars that are borrowed today are higher than the value of the dollars that it will be paid back in down the road. Essentially, and I’d speculate that this is the Federal Governments strategy, is that we can help “inflate” our way out of debt. There are a ton of caveats that could make or break this and a point of diminishing returns to this strategy (i.e. if too much/little inflation is created).

      In simple math: if we borrow $100,000 today and experience 2% avg. inflation for 5 years before we have to pay it back at a value of $90,392.08 because inflation ate up some of it’s value. Hope that makes sense?

  • Sam 3 years ago

    Please explain;

    Low interest rates create liquidity to keep the economy fluid to combat inflation. The BOC has been using this tact for years, the result has been crazy yearly growth in housing prices.

    Introduce the pandemic. The BOC begins a historic exercise of quantitative easing to ratchet down interest rates even lower to create liquidity to keep the economy fluid through the Covid-down-turn. The consequence is an even heightened run at real-estate, driving up prices worse than even pre-pandemic rates…(who’d of thought that was possible)

    Question is….why the tunnel vision to keep inflation down via low interest rates? Why not see that this agenda is actually making life more unaffordable and could have as bad, if not a worse, outcome than runaway inflation?

    • Trader Jim 3 years ago

      It’ not about the housing. It’s about keeping preserving corporate debt, largely oil companies that can’t find re-financing. The 2016 lift off was a calculated risk to preserve the oil industry.

    • Doomcouver 3 years ago

      I think you’ve got it backwards. Low rates aren’t to combat inflation, they create it. Part of why central banks can’t raise rates is because of the so called “missing inflation”. Low rates should be causing tons of inflation, but they are not for various reasons.

      Also, home price appreciation in Canada isn’t reflective of broad-based inflation. It is speculative and debt-fueled manic buying that is causing the price action. That’s why the risk of a housing collapse even exists. If inflation was causing home prices to appreciate there’d be no issue as far as home prices, because inflation-adjusted prices would be stagnating and there’d be no bubble.

      Finally, central banks can’t raise rates because it would cause broad deflation, and one thing central banks know is they have extreme difficulty controlling deflation.

    • Jon Silver 3 years ago

      The real problem is that all the money in the system is going to the top 1% who aren’t spending it in a way that it cycles back to the bottom 99%. Hence how we can have “low inflation” while having house prices stocks going through the roof: there is actually high inflation, it’s just not in the things measured by the government for their inflation statistic, it’s in the things the top 10% are buying. So how will the bottom 90% get money if it’s not circulating? Government printing and handouts!

      A lot of money is if course circulating, just not enough. Most of it is either going to the giant corporations or to foreigners. The foreign money then comes back to Canada to buy up our real estate at prices locals can’t afford.

      It’s a complex problem but what it all boils down to is that we have a very unhealthy economy where we produce little, import everything, and are greedy as hell and don’t care about our fellow Canadians. For the time being we keep up the status quo by selling our country to foreigners in exchange for goods and services. This is obviously not sustainable in the longer term. What will probably happen is that the immigrants will eventually displace our dying culture and replace it with their own healthier economy. Alternatively, the government/corporations might be able to build up enough power and dependency that they can enslave the population. Either way, it looks like a major change is coming. We are currently living the can and fighting over the pennies while the steamrollers approach from multiple sides.

  • Doomcouver 3 years ago

    This is obviously a perpetually sustainable and non-dangerous trend. Continue speculating on housing everyone; Canadians have discovered the first and only one-way bet in history.

  • Sam 3 years ago

    Thank you. I appreciate the explanation.

    Is it a case of the BOC being damned if they do, damned if they don’t….or have they just bungled the housing profile…..or is this just kow-towing to investor & public pressure?

  • Sam 3 years ago

    When is it finally going to crash?

    • SH 3 years ago

      Likely never. The Trudeau Liberals are revving up the immigration machine to force more Canadians out of their own cities. The newcomers vote 80% Liberal in federal elections, so these policies will continue.

      • Paul 3 years ago

        Immigration is not forcing “Canadians” from their cities. This is racist comment steeped in racist rhetoric. People are leaving the cities because they are cashing out. Watch your language and your tone.

        • Jon Silver 3 years ago

          He’s right, though. People are forced out of the cities where they were born and raised as they cannot afford the real estate. High immigration is one of the major drivers of these high prices. There is also a lot of money which Canadians spend on foreign goods and services which come back in the form of immigrants buying our real estate. The race of the people (Canadians or immigrants) is irrelevant in this.

        • Forced out 3 years ago

          No, SH had it right. Foreigners are able to pay more for housing, meaning my friends and I who grew up here can’t compete. And that fact does not make us racist. We’re of varying ethnic backgrounds with the same dilemma.

          Wanting to stop foreign ownership isn’t racist. And food for thought: Canadians are not free to purchase real estate in all other countries. Many of them have restrictions on foreign ownership.

        • SH 3 years ago

          Millennial renters fleeing to Oshawa so that they can buy are cashing out?

          It’s telling that you put Canadians in quotes, as if they are a made-up nationality that doesn’t really exist.

          It’s simple electoral calculus. Liberals want Canadians gone because expelling them from their own cities (and perhaps country – I expect a massive brain drain of young talent) and replacing them with more reliable Liberal voting blocks is good for their electoral prospects.

          • Paul 3 years ago


            You are espousing conspiracy theories and we all know where that road leads.

            The older generations are cashing out. The narrative that millennials are driving proves is just a story the media is feeding people. Three years ago they couldn’t afford houses because they spent too much on advocacy toast right?

            I listed a house in a popular location outside of Toronto. In three days before I cancelled the listing I didn’t get one family. Just old people trying to gobble up houses. They were white. I too it off the market because it’s supposed to be a family home.

            Don’t eat the lies that they have been spreading. Immigrants might be laundering money here but they are not coming in droves. And I guarantee they aren’t driving prices right now. We are.

          • SH 3 years ago

            The fact is, Paul, real estate stats are opaque in the best of circumstances (by design, no doubt). Your anecdotal evidence for old people cashing out is matched with plenty of anecdotes of young people fleeing the big cities in order to afford a home that won’t be financially ruinous to them.

            Canada has one of the highest per capita intakes of immigrants in the world. Only New Zealand accepts a higher proportion. Canada takes in 3x more immigrants per capita than the United States. If this kind of excessive demand is not a factor in pushing up prices, then I don’t know what more to say someone who thinks supply and demand pressures are a myth. It’s like arguing with the economics equivalent of a flat-earther. It’s not the only demand factor but it’s a big one. At what point does this influx become a detriment to Canadian citizens? Do you have a number at which we are allowed to question immigration policy?

            I remind you that immigration policy is supposed to work in the interests of Canadians, not in the interests of foreign nationals trying to move to Canada. And I don’t see how increasing immigration to 400,000/year, as Trudeau wants to do, at a time of elevated unemployment AND a housing crisis is acting in the interests of Canadians (aside from those who won the birth year lottery and bought dirt cheap decades ago).

        • Aurora 3 years ago

          People are leaving cities because they can’t afford to live in them anymore, people who were born and grew up in these cities have to leave their home communities in search of some level of better affordability. People who went to collage, got a good career and make “decent money” most anywhere else in the world cannot even find an affordable place to rent never mind purchase.

        • backwardsevolution 3 years ago

          YOU watch YOUR language and YOUR tone. Yes, you!

          I, for one, am tired of people pulling the “racist” card every time someone opens their mouth. You could have just said, “Canadians aren’t being forced out, they’re cashing in.” But, no, you had to bring up “racism”.

          There is absolutely nothing “racist” in what SH said. It is NOT rhetoric; it is a fact. When did facts suddenly become “racist”?

          Yes, some “Canadians” are cashing out, while others are simply passing away from old age, or going into nursing homes, or too old to keep maintaining their homes, or inflation is eating up their savings, or they get divorced, or they want to help their children get into the housing market, etc.

          There are lots of reasons why people sell their homes. These are called “forces,” and forces are always acting on everything.

          What “forces” have pushed house prices up? There have been many, but one of the biggest forces has been the influx of wealthy, foreign immigrants. They have exerted a tremendous “force” on our society, pushing prices into the stratosphere. They have speculated in our housing markets, flipping houses, laundering money, etc. Don’t even bother trying to tell me otherwise.

          IF prices had not been up in the stratosphere, yes, many “Canadians” probably wouldn’t have “cashed out”. So even though there may have been forces holding people in place (familiarity of the neighborhood, sentimentality), high prices then became an overriding “force”. Maybe the sale of their home was going to allow them to help out their children who have been priced out.

          And, yes, some people want to move out because they don’t recognize their neighborhood anymore. That is another “force”. People want to be around what is familiar to them, familiar culture, familiar language. Is this racist? Probably in your mind. You probably want to control how people think. To me, it is a natural human condition.

          So knock it off with all the “racist” nonsense. The reason we have the problems we have is because people are not able to discuss things anymore without being called a “racist”.

          • Paul 3 years ago


            Nice name. I’m assuming it’s not a tongue in cheek? The only people who overreact the way you did are people who are racist.

            If you aren’t racist a simple I’m not would suffice but individuals who are bent out of shape by it usually have the worst record. I’ve been following all this for a long time. If you really want to change start with getting out data from mls. You will see the agents had a lot to do with price increases.

            This site is about the vulnerability of the market which will see a major correction but your anger to me says you think prices will never be affordable again. What goes up must come down.

            This site isn’t a haven for people who attack other people. I always call people out for anything even remotely racist or prejudice. We all should.

            Simply blaming immigration or foreign investment is a scape goat and I’ll call it out for what it is.

        • Simon 3 years ago

          “I don’t agree with you therefore you are racist”

          • Paul 3 years ago


            Not at all.

            I don’t agree with them.

            Their (SH and Backwards) rhetoric sounds racist.

            Two different,
            complete opinions.

            I come here for enlightenment but when people use that kind of language and point fingers I never see solutions. Just the dark ages.

  • Average Man 3 years ago

    Hi! Regular not super smart guy here.

    Also, yes, I’m a big loser who’s still renting, although I finally have a downpayment together. Yay. (Yay?)

    How does this work. How is this sustainable? How can houses be many multiples of the median wage and keep going up? How can house appreciation in Woodstock be more than the city’s average income? This feels like it should crash, but also it feels like it should have crashed already, so maybe it will just keep going up forever? Can someone please help me make sense of this because I feel like I’m going crazy.

    • Paul 3 years ago

      Average man,

      The narrative currently is that people have been leaving the city to live in the country and have gone wherever it is more affordable. Their incomes haven’t been added to the new “hood” because the last time it was counted was 2018.

      Also people’s parents have been taking money out of their houses like ATM’s because the kids have bought into Fomo and told them it’s their last chance.

      Hold onto your cash and save it. If the market is overvalued (which it is) then the longer you hold your cash the more you save, the better the chance that you will be in a good position to buy when it comes down. Think of it as saving your money twice.

      Also use first time home buyers clause. If you are married only one of you needs to use your rrsps for the down payment.

    • Jason 3 years ago

      @Average Man Sure sounds like your uneducated pretending to be someone that is clueless and that you are heavily invested/ leveraged in the market.

      • Average Man 3 years ago

        I’m almost taking that as a compliment, but you’re drastically incorrect.

  • Sam 3 years ago

    My only question is, when is housing going to vomit….I mean….correct? Been waiting since 2009….

Comments are closed.