Canadian home prices have been growing at a breakneck speed, and incomes aren’t even close to keeping up. Organisation for Economic Co-operation and Development (OECD) numbers show Canada topped the house price to income index. Canada’s gap between house price and income growth grew so fast, it tops the list of high-income, advanced economies.

House Price To Income Ratio

The house price to income ratio is a basic affordability measure, to see if incomes are keeping up. To get the ratio, they take the cost of a median home, and compare it to median income. The lower the ratio, the better income growth is doing relative to house price growth. The higher the ratio, the worse income is doing compared to house price growth. Lower ratios are more likely to support home prices, since incomes can more easily carry them. Generally high ratios are only seen in bubbles and developing nations.

Reading the index put out by the OECD needs a quick explainer, because it’s not a straight ratio. Instead, the organization uses an index with a 2015 base. In plain english, the index is set at 100 for 2015, not the actual ratio. They’re assuming that 2015 was a generally accepted normal year. The increase or decline is relative to that year. For example, if the index hits 120, it means home prices grew 20% faster than income from that period. If it drops to 90, it means incomes grew 10% faster than home prices (or home prices fell) from that year.

Canada Has The Highest Ratio In The OECD

Canada’s house price to income ratio is the highest in the world – by a large margin. The index reached 122.9 in Q4 2018, up 2% from the year before. The country was followed by Portugal, which sat 5.2 points lower. Slovenia reached third on the index, 6.68 points lower than Canada. Most of you probably couldn’t point out those two countries on a map.

OECD House Price To Income Ratio

An index of house price to ratios for OECD countries.

Source: OECD, Better Dwelling.

For context, the US is at 108.11, which means the gap between housing and income grew at 40% of the rate of Canada. The UK, which is being called a “bubble on a bubble,” sat at 107.82. There’s undeniably a lot of home price growth in Canada, or relative income stagnation – your pick.

Growth Peaked In The First Quarter of 2016

The good news is Canada’s ratio has begun to stall. In Q4 2018, the ratio only grew 0.02% from the quarter previous. The biggest jump occurred in Q1 2016, when quarter-over-quarter growth peaked at 4.11%. Since then, the ratio has gradually tapered to mostly flat movements.

Canada House Price To Income Change

The quarterly percentage change in Canada’s house price to income ratio.

Source: OECD, Better Dwelling.

Canada’s gap between home price and income growth dwarfs any other developed country. Over the past 3 years, Canadians have seen prices soar over 20% faster than incomes have been able to grow. Home price growth is cooling in the first quarter of 2019, likely to bring the ratio down on the next report. However, it’s still a pretty big gap created over the past few years.

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