The majority of Canada's home price indices comprise of just 2 markets; namely, Toronto and Vancouver.
I figured I'd do an analysis on just how much home prices need to fall to match income levels. Mainstream media wants to keep you uninformed and want you to get back on the fomo train station and just kick the can down the road. This is not a problem, what's the big deal of having a 30 year amortization when your 50 years old anyway?
According to Treb, the Toronto Real Estate Board, home prices are up 23.94% from March 2020 to March 2023. Home prices peaked in March of 2022 and has declined by 21.5% in the greater Toronto area. Even though home prices have declined significantly, I would say there are more risks ahead. Nominal wages in Canada have not kept up with inflation. The CPI index is up about 13.5% from March 2020 to March 2023 and nominal wages is just under this amount. If your wages went up 4% y/y consider yourself lucky.
Anyway, wages need to keep up with home prices and there is still a significant difference between home prices up 23.94% and nominal wages/household income up only ~ 11% over the same 3 year period. If you zoom out and look at home prices from March 2019 to March 2023, the situation is worse. Home prices are up ~ 37.6% and nominal wages up around 15.5%.
Case 1: If we use March 2020 as a benchmark and if nominal wages increases ~3% over the next 12 months, then home prices must fall by 7.75% from March 2023 levels just to keep up with wages.
(1.2394 - 1.11*1.03)/1.2394 =~ 7.75%
case 2: home prices do not fall but wages grow by 3% annually. Please note that wages should grow by inflation plus productivity growth. In this case, if home prices do not fall but stay constant, then it would take approximately 3.73 years for wages to catch up to home prices. That's a long time.
ln (1.2394/1.11) / ln 1.03 =~ 3.73 years
case 3: We use March 2019 as a benchmark. Home prices are up 37.6% but wages are up ~ 15.5%.In this case, home prices must drop by ~ 16% just for wages and home appreciation to be in balance.
(1.376 - 1.155)/1.376 =~ 0.16 or 16%
https://trreb.ca/index.php/market-news/mls-home-price-index/mls-home-price-index-archive
https://tradingeconomics.com/canada/wages