Is Kitchener Waterloo in a Housing Bubble?

 

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.     

As always, for prudent advice on your real estate needs, feel free to call/email 519-505-4488 jeff.gingerich@century21.ca  

 

Jeff Gingerich

Sales Representative

Century 21 Home Realty Inc. Brokerage

Office:  519-570-4663

Direct:  519-505-4488

http://JeffGingerich.com

"Delivering results since 1989"         

Jeff Gingerich

Jeff Gingerich

Sales Representative
CENTURY 21 Home Realty Inc., Brokerage*
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