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House price to rent ratios in Canadian cities at alarming levels

DECEMBER 23, 2011

By now most people have heard that the IMF has released two excellent reports on the Canadian macro picture, with emphasis on our housing situation.  They can be read in full here and here.

At some point I would like to address some of the issues with the report, particularly some of the findings that completely disagree with some Stats Can and Bank of Canada data (most notably residential mortgage credit outstanding, which is under-reported by 25% and home owner equity positions which significantly differ from our stats agency calculations).  But that will have to be for another post....if I can find the time. The report is full of tidbits regardless.

I did find this chart particularly interesting:

It shows the price/rent ratio of the largest cities in Canada.  Note that Van is roughly 60, TO and Montreal are roughly 35, while Calgary is in the low 30s.  Below is a chart from the NY Times showing price/rent ratios in US at their peak. 

I can’t verify that the methodology is identical, but I think the general picture is clear: The ownership premium in the largest Canadian cities is unprecedented, dangerous to new buyers, and unlikely to persist.  And if analogies to the US situation are at all valid, this is bad news.

To further frame it, if the methodology is at all comparable, it implies that valuations in Vancouver are off the charts compared to any US city at peak, Toronto and Montreal valuations are as stretched as Palm Beach and San Diego were at peak, while Calgary valuations are comparable to Las Vegas.   

While this sort of ‘analysis’ is admittedly shallow and does not look at other macroeconomic variables, it’s nevertheless troubling  considering the findings of a prescient research note from the Fed Reserve Bank of San Francisco which sounded an early warning bell in the US by looking at this very metric:

The majority of the movement of the price-rent ratio comes from future returns, not rental growth rates.  This will not comfort everyone, as it implies that price-rent ratios change because prices are expected to change in the future, and seemingly out of proportion to changes in rental values.

We found that most of the variance in the price-rent ratio is due to changes in future returns and not to changes in rents.  This is relevant because it suggests the likely future path of the ratio. If the ratio is to return to its average level, it will probably do so through slower house price appreciation.

I personally am a huge believer that rents underpin residential house values, a topic I have explored at great length on this site:

http://www.theeconomicanalyst.com/content/house-prices-and-rents-why-they-should-track-each-other-and-why-it-should-concern-us-they-ha

http://www.theeconomicanalyst.com/content/examining-house-prices-and-rents-major-canadian-cities

Because of this, I am greatly troubled by the unprecedented gap between house prices and rents, which the IMF recently calculated is the most stretched in the developed world:

Edit:  As one commenter noted, this metric is not without its limitations.  From TD economics:

"There is no definitive measure that one can point to quantify the degree of excess (with absolute certainty) imbedded in average residential prices in Canada today.  Each measure carries with it some underlying concern about the conclusions that can be made.  For example, if we use the average price-to rent ratio as a benchmark, the ratio inherently ignores the impact of changing mortgage rates, the presence of provincial rent control measures, and a potential divergence in quality between owned and rental accommodation." 

These are all concerns that were raised in the US c.2005, most vocally by those whose incomes were tied to the ongoing strength of the market.  Virtually every metric that academics use to gauge house price vulnerability points to cause for concern.  But as the old saying goes, it's difficult for someone to see the error in their thinking when their income is reliant on them NOT seeing it.  Only those whose livelihood is tied to the housing market could possibly brush these metrics off without consideration of their message. 

At any rate, Merry Christmas and Happy Holidays to my readers.  I'll be back later in December to rain on the bull parade.

Cheers

Posted in:

Ben Rabidoux
By Ben Rabidoux

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40 Comments

  • Appraiser said:
    • 2 years, 3 months

    "There is no definitive measure that one can point to quantify the degree of excess (with absolute certainty) imbedded in average residential prices in Canada today. Each measure carries with it some underlying concern about the conclusions that can be made. For example, if we use the average price-to rent ratio as a benchmark, the ratio inherently ignores the impact of changing mortgage rates, the presence of provincial rent control measures, and a potential divergence in quality between owned and rental accommodation."

    TD Economics - Dec. 22, 2011.

    Cheers Ben...Have a great Christmas!

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  • jesse said:
    • 2 years, 3 months

    The same could be said about the US markets too.

    I know TD needs to consider all factors because it has more on the line than anonymous bloggers but -- shock! -- new buildings cap lower than old ones. If one is worried about rent controls that would actually require lower, not higher, price-rent. Ask your neighbourhood village quant why.

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  • Petr said:
    • 2 years, 3 months

    I agree with TD Economics statement. It is convenient to compare using residential averages; there is not much available for median prices. I remember Ben commenting on rent controls in the past and how it affects those graphs. Comparing averages with fundamentals like GDP, income and rents is really the best we can do. I don't think Ben is trying to pull a fast one on us, and I'm sure he welcomes the challenge to any housing graph. Nevertheless, a good comment from Appraiser, but this TD Economics statement doesn't mean we should dismiss fundamentals and average comparisons altogether

    Have some good holidays all

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  • Peter Brock said:
    • 2 years, 3 months

    I study valuation metrics and have adjusted price/income ratios for interest rates using data from the Federal Reserve back to 1952.

    The resulting interest-adjusted chart exhibits scant central tendency, which means this metric does not fit the actual price history of the real estate market. It also shows peak overvaluation in the early 80s, with the 2006 bubble peak hardly a concern.

    The unadjusted price/income chart looks more valid by comparison, a much better fit with actual prices, complete with an almost-too-perfect average of 100.

    My conclusion is that rent levels reflect the ability to pay. Yes, real estate purchasing power may increase as mortgage rates decrease, but income does not increase and thus neither does rent.

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  • Kevin said:
    • 2 years, 3 months

    Great to have you back this week for as always thoughtful analysis. When you are gone, Canada is missing the Wayne Gretzky of real estate experts.

    Merry Christmas

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  • terces said:
    • 2 years, 3 months

    Stunning statistics we are seeing from you and from all kinds of media now - while the majority are blissfully ignoring.

    I concentrate on managing risk, because my forecasts for when this and that is going to happen have been very inacurate - so focusing on staying away from risk that can have catestrophic consequences, helps guide me as the market drifts.

    My risk management warning system is red lining right now, because of the oil sands over development situation. The strong dollar has tortured exporting and manufacturing in our country. Natural gas prices are abysmal. Oil prices are high, but I see huge risk.

    Right now there are dozens of multi-billion dollar oil sands projects under construction, with no control. Everyone from Norway to China has taken a position in the oil sands. They are paying double for equipment and man power to create facilities that can each produce hundreds of thousands of barrells of oil per day - and they all think there will be a market for this oil - but guess what?

    The Keystone pipeline has been delayed and I believe there is a huge risk it will never be approved, therefore no outlet for all of this oil to the states. Just recently Obama has ok'ed drilling off of Alaska, and it was reported last week that the US was a net oil exporter last year (hard to believe) . The lobby against Keystone is massive, well funded and well organized. So why would they approve dirty oil????

    The other outlet to asia via the proposed Northern Gateway pipeline to Kitimat which would have to traverse many First Nations reserves. Here again the international environmental lobby is huge and well organized and as a result the pipeline proposal is experiencing severe headwinds. Like the Mackenzie Valley pipeline, I believe the best case scenario is it will take decades to get approval, if at all.

    The only other place to send it is to the east coast - but then where is this unrefined heavy oil going to??

    This scenario could easily be the same as when overbuilding in office towers happens in Calgary. The number of cranes gradually increases to a ridiculous number as all of the developers chase the same prize - and then one day the music stops, gaping holes in the ground are abandoned, developers go broke - and the workers stop earning and stop spending.

    I see huge risk for out economy from this. Most of the young people lapping up the over priced condos have never seen a real downturn here and have no idea.

    Ben you are doing your best to warn people, and my hat is off to you for the effort. As we go into this holiday season I want to thank you for your posts and wish you all the very best.

    I hope you hava a relaxing and wonderful holiday and look forward to the new year.

    Best Regards, Ron

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  • Olga said:
    • 2 years, 3 months

    Ben, I have to disagree with you and with the old saying - "....that goes, it's difficult for someone to see the error in their thinking when their income is reliant on them NOT seeing it). Only those whose livelihood is tied to the housing market could possibly brush these metrics off without consideration of their message."
    When people who's income are reliant on the housing market are brushing off the facts, the facts tend to catch with them later on and the ones that ignored the hard truth became the biggest fools - and Ben gets to say:"I told you so".

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  • Alexcanuck said:
    • 2 years, 3 months

    Condo to rent in new building: $1600
    http://tinyurl.com/br34tcz

    Identical condo, except on the 11th instead of the 17 floor: $435K.
    http://tinyurl.com/blwcgnl
    At $75K down (that's a big DP these days!), 4%, 30 year, mortgage is $1711
    $200/month strata, taxes $150-ish/month.

    Look on speculators face when another identical one sells for less than they still owe: Priceless.

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  • Alexcanuck said:
    • 2 years, 3 months

    Note that my example is sitting un-rented at the moment, indicating that the asking rent is higher than anyone has been willing to pay yet. Craigslist rents are notoriously high in Vancouver. I would guess that to attract stable reliable tenants the rent would have to be $1200 or less.

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  • Ben said:
    • 2 years, 3 months

    Having thought about buying for a year and coming across this site (amongst many others), I decided to take my young family out of Vancouver and continue to rent.

    But, what I found shocked me. Rents have risen fast. Maybe not as fast as housing, but they are on their way up(also faster than incomes).

    Anything below $1500 (2 bedroom) was a basement suite with a few exceptions here and there inside Vancouver proper.

    I have a substantial down payment that I feel is better served making rent money for me in diversified investments than plopping down on a 40 year old condo in the burbs.

    My point is, with a decent down payment (AND current interest rates) the average Joe rent to mortgage ratios don't seem to be wildly off. I think the high end of the market skews the equation for sure.

    However, In my average income bracket everything is the high end of the market.

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  • Sean said:
    • 2 years, 3 months

    @Alexcanuck, I have a better example for you,

    For the <2 year old condo I rent for $1695 in Toronto:

    Recent comparable sale: just over $480k.
    Maintenance fee $640 (just went up 14%),
    Property tax $400 (est. ~1% of recent assessment)

    WIth a 5/30 mortgage and CMHC and LLT added to principle, owing costs $3300/month

    Cash Flow = (Rent - owning cost) = NEGATIVE $1600/month!!

    I didn't even include extra costs such as time sitting empty (if any), insurance, repairs.....

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  • Alexcanuck said:
    • 2 years, 3 months

    Sean brings up an interesting point. Here in Vancouver the strata fees are set absurdly low, no contingency fund whatsoever is being built up. Very short-term thinking, no-one plans to still be owning when the special assessments for entirely predictable big-ticket repairs come up. Strangely enough the strata councils are allowed to get away with this.
    Can you say ticking time bomb?

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  • Sean said:
    • 2 years, 3 months

    Interesting, seems different from here. The majority of the recent 14% condo fee increase was to increase the reserve fund. Owners were absolutely furious about it but it is still going through. Notices were posted all over the building to get people together to fight the condo board. These notices were in between the ones about fighting the recent property assessment.

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  • Olga said:
    • 2 years, 3 months

    I agree that even most conservative rent cost estimates fail to include the special assessment situations - big tickets repairs. When we owned the townhouse (that I successfully sold on a peak it price thanks to Ben's insight - the med price declines at the pace of about 1% per 3 month since then) - we had the reg. condo fees and once in every 5 years or so we had to go trough the big jobs for the building - the first time it was a leaky condo renovation (all the outside perimeter walls, windows and roof), the second time it was a pipes replacement. Overall we had to pay additionally more than 10% of the final price that was townhouse was sold for, we owned it for 10 years so it makes 1% per a year.The contingency reserve minimal size is regulated by the provincial act and it is only enough to deal with the emergencies.

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  • Sean said:
    • 2 years, 3 months

    What is amusing is trying my rental situation in some of the rent vs. buy online calulators such as

    http://www.buyselltorontorealestate.com/rent-buy-toronto-condos

    Of course CMHC, LTtax and lawyers are free, mortgage breaking fees don't exist, down payments don't earn interest, and monthly savings from renting don't earn interest.

    Better yet, it calculates that if I buy the condo for $500k and sell it in 5 years for the same $500k, then I will be $28k ahead vs. renting. This is because after paying off the mortgage balance and realtor (and the free LTtax/Lawyer/CMHC) I will have $28k left over. The additional $100k ownership premium is listed but apparently not relevant to the comparison and so it is excluded from the total.

    "Calculation of why I should own"

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  • Appraiser said:
    • 2 years, 3 months

    @ Sean:

    So you live in a 2-year old condo that the owner probably purchased 4 or 5 years ago at pre-construction prices and you are comparing the potential investment scenario based on today's resale prices.

    Do you not recognize any possible flaws in your calculations? If not, let me help. There is a very good chance your landlord paid half the price of what the unit is worth today.

    Not only is your landlord sitting on some fat capital gains - he's got you paying for his investment.

    Feeling smug now?

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  • Sean said:
    • 2 years, 3 months

    @Appraiser

    Thank you for helping me to recognize the flaws in my calculations. The article was about the current price to rent ratio and I posted an example of a current price to rent ratio which shows current prices are out of line with current rents. But now I realize the 'flaw', we are supposed to use past prices when calculating the ratio.

    IMF has this same flaw in their calculations, you should inform them that they need to make corrections in the articles Ben linked to. They mistakenly compared current rents to current prices when they should have compared to what ever past price it takes to show a good ratio.

    By the way, using your logic still doesn't fudge price to rent ratios enough to justify 'current' prices (if that is your intention). My landlord did buy pre-build at a lower price and is about $800/mth cash flow negative.

    As for the capital gains, yes he made some and took a huge risk to do so. Is that relevent to the 'current price to rent' topic? And does that justify 'current' prices?

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  • Appraiser said:
    • 2 years, 3 months

    Greater Toronto, December 20, 2011 - The new homes market in the GTA broke two records in November, raising the bar for both high-rise sales and total new home sales, the Building Industry and Land Development Association (BILD) revealed today.

    According to RealNet Canada Inc., BILD's official source of new home market intelligence, there were 4,640 new homes and condominium units sold in the GTA in November, slightly edging its 2010 predecessor by six per cent and outweighing the 2001 record for total new home sales that month. Things were particularly hot in the high-rise sector, with 3,137 sales smashing 2010's record for most units sold in November by 21 per cent.

    On a year-to-date basis, 2011 is the best year ever for high-rise sales, surpassing the 2007 record of 23,234 back in October. While the City of Toronto still played an integral part in this accomplishment, high-rise sales in York Region more than doubled in November, which follows the trend of the last several months.

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  • Joe Q. said:
    • 2 years, 3 months

    Appraiser,

    Sean's example is extreme, but he probably still has reason to be smug even in the scenario you paint.

    He is being charged $1,695 per month to rent a condo where taxes and fees cost $1,040 per month. The landlord nets $655 per month to cover his mortgage payments. Even if the landlord bought pre-construction at half of the condo's present value, putting down 20% and amortizing over 30 years, the mortgage payments would be a little over $900 per month, meaning a net loss of about $250 per month or $3,000 per year, not counting allowance for vacancy, assessments, or maintenance not covered by the monthly fee.

    Also implicit in your comment, Appraiser, is the recognition that one cannot hope to buy a condo at today's resale prices and get a net positive cash flow by renting it out at market rents. I think you'll agree that this is a very scary position for the RE market to be in.

    There are a lot of situations where buying clearly makes more sense than renting, but this certainly ain't one of them.

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  • Appraiser said:
    • 2 years, 3 months

    Sorry Joe Q., but my calculations beg to differ.

    $192,000 mortgage (half price - 20% DP) @ 3 % VRM, 30-year amortization = $808 / month plus taxes and maintenance, which is cash flow positive. At 2.15% VRM (that many investors are still locked into, including me), the cash-flow story gets even better.

    P.S. Not only is the landlord cash-flow positive, you failed to mention that the he / she is also sitting on over $200,000 capital gains in the above scenario.

    Now, having said that; as for investing in a condo today - I wouldn't recommend it for cash-flow, but you might make a little as a flipper. I wouldn't take the chance personally. It's not that I see a crash in the cards, but galloping annual gains seem remote. No tree grows to the sky and even ulta-low interest rates have limitations in regards to price appreciation.

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  • Joe Q. said:
    • 2 years, 3 months

    Appraiser, what am I missing here? Even your calculations show an $808 monthly mortgage payment for a landlord who's only netting $655 per month from rent after taxes and fees are paid. The landlord is still out $150 each month in your scenario.

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  • Sean said:
    • 2 years, 3 months

    To extent the logic, anything is cash flow positive at any price depending on how you buy it. As long as the DP is high enough, it doesn't matter how over priced the property is.

    If I buy a 1,000,000 house with a 100% DP and rent it out for $20 a month it is cash flow positive.

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  • Sean said:
    • 2 years, 3 months

    I looked at the 'price to rent' calculator that I linked above. I don't know why these are always so wrong. Are the creators incompetent or dishonest? The one I linked before clearly fits out right devious:

    I entered a rent of 10k/mth for my place and the calculator added a line "Savings Through Purchasing a Home= $428,296.22"
    link-Savings through purchasing included

    At 1cent/month the monthly savings would add up to $202k over 5 years, but
    link-Savings through purchasing line disappeared

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  • Alexcanuck said:
    • 2 years, 3 months

    Do try to keep up, Appraiser!
    We are talking about where we are and what comes next, not what has happened in the past. Driving while looking only in the rearview mirror is not a great idea, ya know.

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  • Appraiser said:
    • 2 years, 3 months

    @ Alexcanuck:

    I didn' realize that you could see into the future. So tell us, Oracle, what comes next?

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  • Olga said:
    • 2 years, 3 months

    Even if the owner of Sean's condo bought it at the pre-sale prices and breaks about even with the rent/ownership costs, does it make a sense to keep it and to rent versus selling it now? Since there is no real prospect of it adding the capital gains but more likely shedding some? Why there are few people that sell it?

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  • pt said:
    • 2 years, 3 months

    Lang and O’Leary Exchange – one segment of the show was on toronto's condo market:

    http://www.cbc.ca/video/#/News/TV_Shows/Lang_&_O'Leary_Exchange/1308689786/ID=2180026313

    The clip on condo starts at the 35:38 mark
    The joke starts at the 38:00 mark

    It's all good for condo investments! ;)

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  • Greg said:
    • 2 years, 3 months

    Notice the two headline monkeys backing up their investment advice with CMHC banana stats? That's how manipulating data effects an investor's thinking.

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  • Greg said:
    • 2 years, 3 months

    All-in-all what matters now is how many fools got in the market at post-sale prices with bottom interest rates. By looking at monthly change in mortgages, you can see when the concentration of new mortgages started entering the market.

    Trend-line is average flow based on the balance of mortgages per month.

    Canada http://i40.tinypic.com/2u56vee.png

    Ontario http://i42.tinypic.com/p3apu.png

    BC. http://i42.tinypic.com/14xo1tt.png

    Not surprisingly, there isn't much change in B.C. compared to Ontario, which could indicate many homes were paid cash. For Ontario (Toronto), good luck to those who let their expectations run wild.

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  • John B. said:
    • 2 years, 3 months

    I feel like there is real lack of trustworthy information. Each article says something different. What is for sure, housing prices keep growing every year. This article speaks about the situation in Calgary, which is supposed to keep growing in 2012. But is there a possibility of catastrophic scenario? I am not sure, but I have been observing the same dramatic forecasts for a long time and Canada is still going on with it´s real estate market.

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  • Earl said:
    • 2 years, 3 months

    thanks Ben and merry Christmas to you too

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  • thinker said:
    • 2 years, 3 months
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  • robledoch said:
    • 2 years, 3 months

    I found the following concepts of extreme interest in the paper cited above (http://www.imf.org/external/pubs/ft/scr/2011/cr11365.pdf)
    1) page 8 "These regressions suggest that the extraordinarily
    low level of interest rates is among the factors that have spurred the recent growth in
    mortgage debt and house prices. ", and
    2) page 9, point 6 exhibit, the estimated house price overvaluation in Ontario is between 10%-15%, and in some provinces, such as Alberta, are UNDERvalued by up to 10%.

    This seems to indicate a slight bubble, but nothing major, like 30% price reductions, or more, in many US markets, or European countries (Spain, Ireland, etc.)

    In fact, consumers consider such overvaluations as normal, capable of being absorbed during the lifetime of the 20-30 mortgage. That is, on a $400k home, the over valuation may be $60k, and represents an extra $60k x 3% = $1800 per year of extra interest expense, based on current prime rates. If the prime rate doubles to 6%, the extra $60k house price represents $3600 per year, or $300 per month - not bad if you consider that with today´s low interest rates, many people can get a head start on owning their first home or upgrading, and building up equity at cheap rates for the next few years (how many?) at which point their equity would have increased enough to compensate any price corrections downwards.

    The whole debate of overvalued homes vs renting rests on your ability to correctly understand the trend of central bank rates (prime rates, mortgage rates).

    While the US economy is depending on low interest rates, the Bank of Canada will have to keep current low rates in order to avoid the CDN$ to appreciate too much and reduce exports to our biggest export market.

    Why do I predict this?

    We clealy see how the Bank of Canada rationalizes current bank rates of 1% with an inflation rate of 2.9%. Back in Sep 2010, they were quick to react and increase rates from 0.75% to the *current* level of 1% when CPI reached 1.9%, and they were concerned of keeping it in check. Now, with CPI going up to 3.7% in May of 2011 and down to 2.9%, and with an increasing Core CPI to 2.1% currently, the bank of Canada *still* keeps their 1% rate!

    Just as home valuations will not replicate the increases that have taken place in the last 5-8 years, given that interest rates are already very low, and can´t really go much lower, I believe that home valuations will NOT decrease until the US economy resumes 2002.-2003 levels (in output, inflation and employment levels), home prices stabilize, and the exchange rate to the CDN $1 lowers back to the USD$ 80 cent range, the bank of Canada will have to continue to keep rates down, and keep the exchange rate just below the psychological ceiling of USD$1.

    Low rates will be here for a while, which is not bad, regardless of the inflation that it will bring, and thereby, stabilize the home prices to income levels (since incomes will be increasing with inflation levels).

    Happy home buying!

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  • robledoch said:
    • 2 years, 3 months

    In the other paper cited above (http://www.imf.org/external/pubs/ft/scr/2011/cr11364.pdf), it is interesting to note the graphs on page 12, in the section "C. Household Debt and Housing Prices".

    Anything of interest? (really, check before reading on....)

    Unlike other graphs trying to indicate an increase in the house price to rent ratios, with a dip in 2008 Q4, (start of the crisis), there is a SECOND dip in 2010 Q2-Q3!

    Well, this means that yes, price corrections have taken place ALREADY, and the trend tends to reassert itself, but appears to be more moderate plateau. The next few years will tell.

    Again, Happy New Year and Happy Home Buying!

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  • Sean said:
    • 2 years, 3 months

    Ben,

    Any 2012 predictions? It will be hard to top last years predictions.

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  • robledoch said:
    • 2 years, 3 months

    No need for USA predictions based on new transparency initiative
    http://www.xe.com/news/2012/01/04/2378553.htm#

    The trick will then be to forecast the cdn reaction to this.

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  • Stah Warga said:
    • 1 year, 11 months

    Hi Ben,

    I agree with you that house prices should be based on potential rents an owner can expect to generate in the future, and based on where things stand in Toronto it sure looks like we are in the bubble (I certainly believe that, despite the fact that after 7 years I still own by condo downtown Toronto where I live). But looking at the charts (Price/Rent in Toronto of ~35x for example) you posted something looks ‘off’ to me. Based on reported average prices of ~$500K in Toronto and 35x ratio the rent must be somewhere around $1.2K/M which I thought is simply NOT possible in Toronto so I checked. In fact ~$1,200/month for 3 bedroom apt IS what is being reported by CMHC and Stats Canada so 35x IS technically CORRECT, BUT (and it is a very big but) here lies the problem, the $500K is the average price of all houses in Toronto but $1,200 measures the average rent. Based on MLS listing getting 3brds for $1,200 basically means old, crime infested buildings in ‘priority’ neighborhoods in Toronto http://www.realtor.ca/propertyDetails.aspx?propertyId=11737046&PidKey=-1... where you can buy for around $150K (not $500K) so the ratio is more like $150K/12Months/$1,400=8.9x not 35x. Do you know if there is anyway (a better rent index???) to derive a long term chart based on price/rent for same quality units (i.e. houses, condo, townhouses, etc) - the problem with existing chart is that ratio is increasing ‘naturally’ as result of growing income inequality (average rents can only go up with minimum wage and level of immigration) and low interest rates (monthly payments going down even if house prices increase).

    Stah.

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  • Jack said:
    • 1 year, 9 months

    Hi, is there a way for me to calculate the price to income and price to rent ratio myself? or is there a website which has those information? thanks

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  • aziz said:
    • 2 months

    I want d rent a cheap house. I want a formation. Thanks

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  • NickD said:
    • 4 hours, 16 minutes

    I just came across this blog post... So looking at listings for homes that are both on the market for rent and for purchase, the buy/rent ratio seems to be pretty consistently around 18-22, whether that's condos or SFH, modest or luxury, downtown or suburbs. It seems quite likely the IMF used average home sales price and compared to average rent, but rental properties are usually smaller or more modest units, while homes sold are more likely larger SFHs, so you end up with an apples to oranges comparison. I have no idea how this compares to the US methodology though, and it's quite possible that it suffered from the same flaws.

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