Canada Has The Biggest Gap Between Real Estate Prices And Incomes In The G7

Canadian real estate is unaffordable, but you don’t appreciate how bad the reality is until you look at its G7 peers. The latest house price-to-income ratio data from the OECD shows all G7 countries are seeing affordability decline. However, Canada has consistently seen home prices outgrow incomes. Since 2005, no other G7 country has seen the gap between home prices and incomes widen this much. It’s not even close.

House Price-To-Income Ratio

The house price-to-income ratio is a fundamental measure of home price valuation. It’s straightforward, just measuring home prices divided by disposable income. When the ratio rises, home prices become more expensive relative to incomes. If the ratio falls, they’re becoming more affordable.

Directly comparing countries doesn’t make much sense, so the OECD created an index. By using an index, we can rebase all countries to see how they’ve performed over time. For example, if the index reads 125, home prices grew 25% faster than income. Today, we’re using a base year of 2005 to compare pre and post-Great Recession data.

Canadian Real Estate Prices Are The Most Overvalued In The G7

Canada’s house price-to-income ratio has soared higher than any other G7 country since 2005. The index came in at 164.8 in Q2 2021, up 19.8% from five years prior. Home prices have increased a whopping 64.8% faster than income since 2005. A whole analysis on just these numbers could be done (and will be!), but let’s look at some obvious takeaways.

G7 House Price-To-Income Ratio

The indexed value of the house price-to-income ratio for G7 countries, as well as the OECD average.

Region	CAN	DEU	FRA	GBR	OECD	JPN	USA	ITA
2005 Q1	100	100	100	100	100	100	100	100
2005 Q2	100.17	96.85	102.84	99.81	100.3	98.03	101.26	100.9
2005 Q3	99.97	98.84	105.65	100.31	101.23	96.96	102.61	101.61
2005 Q4	101.54	96.18	107.83	100.88	101.85	96.83	103.34	102.55
2006 Q1	101.96	96.46	110.52	102.32	102.05	96.39	102.5	103.51
2006 Q2	106.09	95.59	111.29	103.21	102.19	93.77	102.18	104.09
2006 Q3	107.75	94.59	112.49	103.85	102.4	92.39	101.66	104.67
2006 Q4	108.82	94.18	113.05	106.44	103.06	92.21	101.28	105.39
2007 Q1	108.03	91.22	113.78	107.26	102.97	91.88	100.47	105.57
2007 Q2	113.07	91.95	113.68	109.15	102.97	92.36	99.16	106.19
2007 Q3	115.87	92.06	113.98	109.32	102.57	92.42	97.41	106.97
2007 Q4	116.21	90.95	114.17	110.45	101.42	92	94.78	108.03
2008 Q1	115.63	92.11	113.58	109.34	99.99	91.73	91.89	107.65
2008 Q2	115.41	89.83	113.15	104.64	98.02	96.27	86.98	107.64
2008 Q3	114.07	88.77	112.42	99.8	96.66	94.01	85.8	107.98
2008 Q4	112.45	91.28	109.53	93.39	94.75	91.22	83.95	107.8
2009 Q1	110.71	90.72	106.35	90.98	93.97	88.32	84.39	108.05
2009 Q2	108.28	90.95	103.7	88.97	92.84	89.68	82.59	107.57
2009 Q3	109.88	92.06	103.39	91.65	93.41	90.19	82.82	106.99
2009 Q4	113.65	93.24	104.17	93.63	93.41	89.68	82.16	106.66
2010 Q1	115.15	91.13	105.5	96.11	93.1	90.91	80.64	107.87
2010 Q2	118.31	90.74	106.57	95.63	92.42	90.41	78.97	107.73
2010 Q3	117.25	90.63	107.47	95.56	91.44	90.51	77.2	107.71
2010 Q4	114.82	88.94	109.36	94.72	90.79	92.04	75.8	107.39
2011 Q1	116.17	91.19	110.55	95.47	89.54	91.97	72.94	104.72
2011 Q2	117.59	90.54	112.08	93.06	88.95	91.38	71.93	106.87
2011 Q3	119.22	89.96	112.95	92.43	88.68	91.48	71.64	107.55
2011 Q4	119.44	89.97	112.59	92.74	88.31	91.17	71.47	108.24
2012 Q1	119.74	89.52	111.3	91.19	87.39	90.16	70.13	110.24
2012 Q2	121.04	90.74	110.4	90.12	87.31	90.27	70.59	109.1
2012 Q3	120.5	92.52	110.17	90.32	87.69	89.9	71.83	106.99
2012 Q4	120.37	93.54	111.37	90.27	87.2	90.67	70.67	104.85
2013 Q1	119.01	93.14	110.13	91.32	88.66	90.09	74.92	102.55
2013 Q2	119.79	93.41	109.59	89.46	88.99	90.93	75.97	101.38
2013 Q3	120.03	93.21	109.18	88.45	89.32	92	76.71	99.7
2013 Q4	120.8	93.79	109.32	90.36	89.72	92.94	77.04	98.47
2014 Q1	122.91	93.89	107.93	92.98	89.79	92.26	76.8	97.67
2014 Q2	123.02	94.53	107.57	93.84	89.58	92.41	76.24	95.81
2014 Q3	123.23	94.54	106.18	96.1	89.53	92.87	76.14	94.31
2014 Q4	124.44	94.42	105.16	96.3	89.69	93.58	76.3	92.79
2015 Q1	124.45	96.44	104.53	95.74	89.93	93.91	76.79	90.93
2015 Q2	124.42	96.68	103.96	94.6	90.26	93.1	77.32	90.06
2015 Q3	126.14	96.86	103.61	94.11	90.7	93.95	77.81	90.5
2015 Q4	128.97	97.87	103.51	96.77	91.32	93.55	78.64	89.63
2016 Q1	135.71	100.04	103.34	99.8	92.11	92.92	79.16	89.93
2016 Q2	137.53	100.7	103.31	100.3	92.91	95.56	80.07	89.38
2016 Q3	141.6	102.33	103.21	101.42	93.54	94.91	80.71	89.05
2016 Q4	144.15	103.11	103.49	103.47	94.12	94.98	81.29	88.24
2017 Q1	148.57	103.16	104.05	104.45	94.46	96.17	81.21	87.24
2017 Q2	151.66	104.07	104.32	102.94	94.84	95.9	81.73	86.44
2017 Q3	153.24	104.91	104.8	103.86	95.28	95.55	82.3	85.79
2017 Q4	151.44	106.18	103.93	104.19	95.56	95.84	82.67	85.39
2018 Q1	154.15	106.45	105.03	103.17	95.83	96.8	82.86	84.85
2018 Q2	155.59	107.47	104.69	103.44	95.87	96.48	82.81	84.15
2018 Q3	155.93	109.28	105.05	103.33	96.1	96.71	82.99	83.5
2018 Q4	155.06	108.9	104.27	102.1	95.9	96.02	83.02	83.66
2019 Q1	154.96	109.72	104.08	102.44	96	97	83.39	82.28
2019 Q2	151.49	110.57	104.97	101.18	96.42	97.09	84.29	82.75
2019 Q3	151.38	111.13	105.58	102.33	96.88	96.9	84.71	83.37
2019 Q4	151.31	113.11	105.97	101.23	97.4	95.92	85.16	84.27
2020 Q1	153.31	116.46	108.84	103.38	98.67	94.87	86.2	85.76
2020 Q2	142.38	119.12	111.66	106.45	96.05	91.28	79.21	87.97
2020 Q3	150.25	119.04	110.42	103.39	99.01	93.5	85.13	86.92
2020 Q4	157.97	121.55	110.64	106.82	102.47	95.65	90.29	88.2
2021 Q1	158.55	125.51	112.16	109.03	100.77	97.81	83.47	88.66
2021 Q2	164.79	128.46	113.15	111.7	107.54	102.65	94.19	87.57

Source: OECD; Better Dwelling.

The detachment between home prices and incomes is like nothing any other G7 country has seen. Home prices grew faster than incomes at over double the rate of the following country, since 2005. To complicate it further, about half of this disconnect occurs after 2015. Not only is Canada’s recent bubble growing as fast as Germany, but it’s on top of an existing issue.

Germany Home Prices Are Growing Much Faster Than Incomes

Germany’s residential real estate market is next, and it’s not even really that close. The country’s index hit 128.5 in Q2 2021, up 27.6% from five years before. Home prices have grown 28.5% faster than disposable income since 2005 — about half the rate Canada has seen. It’s also worth noting that more than half of Germany’s growth since 2005 is from Q3 2019 and forward.

US Incomes Have Outgrown Real Estate Prices Since 2005

The US, not known for its fiscal restraint, looks like a country of penny pinchers compared to the rest of the G7. The country’s index is 94.2 in Q2 2021, up 17.6% over the past five years. You may have noticed that this number is less than 100, meaning it’s more affordable than in 2005.

Disposable incomes have outgrown home prices by about 5.8% since 2005. Due to recent growth, the US real estate market might technically be in a bubble. It’s not nearly as bad as it was back then, though, and compared to other G7 countries — it looks cheap… ish.