BMO: Home appreciation a more reliable source of income than employment in multiple housing markets
Average home prices in multiple Canadian cities far outstrip the median household incomes in these markets, according to BMO Capital Markets senior economist Sal Guatieri.
In a recent research note, Guatieri said that the trend of housing costs steadily outpacing incomes of Canadians is especially risky in a struggling economy.
“Asset prices start to raise red flags when they consistently outrun growth in underlying income or earnings,” Guatieri wrote, pointing to Ontario as particularly emblematic of the development.
Using data from the Canadian Real Estate Association, Guatieri said that the benchmark home price in the Greater Toronto Area went up by $98,900 annually in January. This was far above the region’s most recently calculated median income of $86,670.
The situation isn’t much better in Peterborough, where the benchmark was up by $97,400 annually, while the median income was $84,100. The Hamilton-Burlington area had one of the most glaring disparities, with average home prices growing by $154,000 year over year in January, while the median household income was $75,464.
Some markets outside Ontario have also shown these distressing indicators. British Columbia’s Fraser Valley posted average home price growth of $75,900 last year, while the median income was at $69,289.
In Greater Montreal, the benchmark home price grew by $62,000 annually, while the median household income stood at $61,790.
“It’s clearly unsustainable in the long run, as affordability would deteriorate pretty quickly if it continued,” Guatieri told HuffPost Canada.
However, the economist emphasized that a market correction is unlikely in 2021 “as demand is simply too strong relative to limited supply, but we do expect sales levels and price growth to moderate as affordability weakens and pent-up demand from teleworkers ebbs.”
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