The Canadian Centre for Policy Alternatives has just released a report titled 'Canada's Housing Bubble: An Accident Waiting to Happen'. The author is David MacDonald and he studied housing trends in the country's 6 biggest markets: Vancouver, Edmonton, Calgary, Toronto, Ottawa and Montreal. Among other data, he compares provincial median household income and determines that between 1980 and 2000, the typical range was 3-4 times income while it currently sits at between 4.7 and 11.3 in these cities. You can view the entire report here http://tinyurl.com/32dtxhm.
As I've mentioned previously, real estate is local so I thought I'd apply the same analysis to Kitchener Waterloo prices to determine if we're in a housing bubble. The Vanier Institute supplied the most recent information on Kitchener Waterloo median household income of $67,000 for 2008. I'll allow a 2% year-over-year increase bringing it to nearly $70,000 for 2010. Using the typical range of 3-4 times income, our average housing prices should be in the range of $210,000 to $280,000. The Kitchener-Waterloo Real Estate Board reported that up to the end of July, 2010, the average residential sale price year-to-date was $286,422. This would represent a price to income ratio of approximately 4.1. Of note, average prices had risen 9.2% year-over-year.
For comparison, the Canada 2006 census showed 2005 median household income of $63,984 for Kitchener. With the average house price at $215,620 for 2005, we had a household income to sale price ratio of approximately 3.4.
These results should come as some comfort, particularly for those relocating to Kitchener Waterloo from any of the 6 cities studied. Our area continues to attract the best and brightest to the University of Waterloo and its Research and Technology Park http://uwrtpark/uwaterloo.ca. As lucrative jobs by the likes of Research in Motion and Open Text are added within the community, expect median household incomes to increase.
So what can we expect going forward? I anticipate Kitchener Waterloo real estate prices will experience a slight correction or "soft landing". Affordability has eroded due to higher interest rates and higher prices. However, absent any external "shocks", it's safe to say we can rule out a housing bubble locally at present.
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