7 Remarkable Numbers From Canada’s Housing Market

No doubt real estate has been the saviour of the Canadian economy. Mostly thanks to all of those condo towers and housing developments, the country escaped the worst of the Great Recession.

Since the housing bull market began 20 years ago, the industry has posted some truly incredible figures. Here are the top seven most remarkable numbers from the nation’s real estate market.

1. 150% price increase

According to the Canadian Real Estate Association, the average house in Canada sold for $152,378 in 1998. Today, the mean house price has ballooned to $379,725. This represents a 150% price appreciation over that time frame — one of the best performances in the industry’s history.

2. 7.8x income

As you might expect, real estate prices have handily outpaced incomes. Over the past 15 years, the average full-time salary has increased at a 2.5% annual clip, versus house prices that have grown at a 6.3% annual pace.

Historically, financial advisors recommended spending no more than three times your income on a house. This advice now seems hilariously out of date. Today, the typical Canadian pays 7.8 times their salary to purchase a home.

3. 163% of disposable income

How did this happen? Canadians have opened their wallets and taken on record amounts of debt. According to Statistics Canada, household debt-to-disposable income hit a record 163% this year. That’s approaching the peak levels where the U.S. and the U.K. topped out when their housing bubbles burst.

4. 27 times rent

This debt binge has produced some eye-popping valuations. Today, Canadian real estate is priced at 27 times annual rental income. In certain cities, the figures are even more outstanding. In Toronto, the average home sells for 37 times average rental income. In Vancouver, it’s 60 times annual rents!

This is well outside historical averages. Over the past 50 years, Canadian real estate nationwide traded between 15 to 20 times rental income. According to a recent report from the OECD, the nation’s housing market is about 60% overvalued based on long-term price-to-rent averages.

5. 4.23% dividend yield

High valuations aren’t limited to the residential housing market. In a desperate bid for yield, investors have turned to real estate investment trusts, or REITs, to generate income. This spring, the yield on the iShares REIT Index Fund (TSX: XRE) hit a record low of 4.23%. This is notable because the index historically has yielded between 7% and 8%.

6. 53,000 units

In the Greater Toronto Area there are 171 condo developments and more than 53,000 condo units under construction. That’s twice the rate of New York City — an area with three times as many inhabitants.

7. 13.5% of jobs

A booming real estate market has fundamentally reshaped the country’s economy. Today, residential construction now accounts for 7.9% of Canadian gross domestic product. That’s the highest since 1987.

Today, 13.5% of all jobs in Canada are linked to the construction industry — the highest proportion in 40 years. Compare that to the United States, where only 5.8% of jobs are related to construction.

The Foolish bottom line

It’s hard to argue that the numbers coming out of the Canadian real estate industry are ominous. Much of its impressive performance has only been made possible through ample quantities of cheap debt.

By Robert Baillieul - November 26, 2013

This article is a great informative read and has some very important points for us to consider. 

Hi,

FOR IMMEDIATE RELEASE
November 1, 2013          

VICTORIA, BC–Greater Victoria continued to experience strong home sales during the month of October, reports the Victoria Real Estate Board (VREB). According to the Board’s MLS® System, 512 properties sold compared to 373 in October 2012, an increase of 37.27 per cent. There were 4,322 active listings.

“While we are all very pleased with the October results, we are tempering our enthusiasm,” says Shelley Mann, Board President. “After a slow market for the last half of 2012, we are still climbing back to previous annual sales numbers.”

Today, the VREB and joins the Canadian Real Estate Association and ten major real estate markets in Canada by adopting a new approach to the reporting of trends in residential property prices. Instead of relying on average and median sale prices which are subject to fluctuation, the Board moved to a new system called the MLS® Home Price Index (MLS® HPI). The methodology used by MLS® HPI has been endorsed by Statistics Canada, Canada Mortgage and Housing Corporation, the Bank of Canada, Finance Canada and Central 1 Credit Union.

At the heart of the MLS® HPI is the concept of the "benchmark" home, a notional home comprising the most common attributes of typical homes in a given area. Through the analysis of ten years of VREB MLS® sales data, MLS® HPI has defined benchmark homes for Greater Victoria as a whole as well as for each of our regions, districts and neighbourhoods. In each of these areas, MLS® HPI has defined a benchmark home for each category: single family homes, townhouses and condo apartments. Each month, VREB MLS® sales data will be fed into the MLS® HPI to calculate and track changes in the prices of our benchmark homes. 

Benchmark prices are generally lower than corresponding medians and averages.  MLS® HPI estimates the values of our typical homes, whereas medians and averages merely reflect the overall selling prices of the particular mix of homes that sold in a given month.

In a manner similar to the Consumer Price Index (CPI), MLS® HPI maintains a running index of the percentage change in benchmark prices.  Like the CPI, the MLS® HPI assigns an index value of 100 to the benchmark prices at its starting point: January 2005.  By tracking both benchmark prices and index values each month, MLS® HPI will provide a much clearer picture of real estate market trends in Greater Victoria. 

“Past reporting of averages and medians showed flat pricing across the Board’s trading area but MLS® HPI indicates a moderate decline in prices in many markets over the last year,” Mann says. “Benchmark prices are flat month-over-month, and we will be watching very carefully to see where pricing goes.

“With average and median prices, it was often difficult to gauge whether prices of typical homes were rising or falling, but the HPI provides us with exactly this type of information,” she says.

For October 2013, the benchmark price for the Greater Victoria single family benchmark home was $485,400 and its corresponding MLS® HPI index value was 137.2.  (This represents a 37.2 per cent increase since January 2005, when the index was 100). This benchmark price increased 0.15 per cent over the past month and decreased 3.18 per cent over the last year.

At the regional level, the benchmark price for the single family benchmark home in the Core municipalities was $547,800, a decrease of 0.56 per cent over the previous month and a 2.66 per cent decrease over October 2012. In Westshore, the benchmark price for the single family benchmark home was $410,600, a decrease of 0.37 per cent over September 2013 and 4.37 per cent decrease over October 2012. The benchmark price for the single family benchmark home on the Peninsula was $508,700 for September, an increase of 1.22 per cent over the previous month and a 3.56 per cent decrease year-over-year.

There were a total of 274 single family homes sold in September, an increase of 29 per cent over September 2012. September also saw the reporting of 126 condominium sales and 51 townhouse sales in Greater Victoria. Benchmark prices for the Greater Victoria condominium benchmark home and for the Greater Victoria townhouse benchmark home for September $283,100 and $393,100 respectively.

Total Waterfront Single Family Dwellings sold:                      17, up 2 over October 2012

Total Non-waterfront Single Family Dwellings sold:           257, up 62 over October 2012

Single Family Dwellings sold over $1 million:                          16 (1 over $2 million)

For more information on MLS®HPI benchmark prices and index values for September, visit www.vreb.org. Those requiring specific information on property values in their area should contact a REALTOR®. The Victoria Real Estate Board has 1,224 Members.