Ratio of Average Home Price' to Average Disposable Income

We analyzed the home affordability in Canada and the U.S. by examining the average home price versus average disposable incomes. s

At Wowa Leads (wowa.ca & casaplorer.com), we've tracked the ratio of average home prices to disposable income in Canada and the U.S., identifying when their paths diverged.

In the U.S., over the last 50 years, the average home prices have consistently been between 6 to 9 times average disposable income, with peaks at 9 in 1980, 2006, and in 2022.

However, Canada saw a divergence in 2006. From 1975 to 2006, like the U.S., Canadian home prices were also between 6 to 9 times disposable income. But post-2006, they jumped above 9, even hitting 14 times income by 2022. While the home price upward trajectory started in 2001, the divergence happened in 2006, why?

A likely factors 🤔 :

The Bank of Canada, mirroring the Fed, repeatedly cut rates and maintained them at low levels for a long period. Unlike the U.S., Canada didn't face a home price crash or significant price correction between 2007-2009, suggesting the overly aggressive rate cuts were ill-suited for Canada.

Sources:

• Canada housing market
• Federal Reserve of Dallas
• Raw data (excel file) from Federal Reserve Bank of Dallas
• Canada inflation calculator