519-646-2222Why are house prices so high?
The reason why house prices are so high has nothing to do with the quality of the build, scarcity of land or rarity of materials. The main reason why house prices exploded was loose lending policies – between 2020 and 2023 – if you had a heartbeat and a pen you could get a mortgage. Economists, are theoreticians who create economic models based on rejigging controls and accounting methodology to protect “stakeholders“.
If you haven’t already figured the last part out, you are not a stakeholder, stakeholders are central and chartered banks as well as extremely rich businesses and media influencers. Canadian houses are built with low quality materials and to minimal standards – in fact the average Canadian house is built for about a twenty-five year lifecycle, by which time major renovations will be required.
What single factor occurred in 2020 that drove up prices – was it fear of missing out, realtors encouraging people to overbid on houses, even site unseen, was it high rates of employment, perhaps increased salaries, maybe baby boomers (born between 1950-1966) drove up prices? Could it have been the investment value of real property, or more realistically a deliberate transfer of wealth from the working classes to the very wealthy?
In 2019 the average house price (outside of Vancouver and Toronto) was $400,000 by early 2022 the average price (not value) had doubled in most Canadian markets. In 2019 the median individual income was a mere $40,000 (meaning that fifty percent of all income earners reported less than $40,000 per year before taxes) while the mean income was a whopping $51,000. The average house price was ten times median income.
By 2022 the average house price had increased to an excess of $800,000, the median income had increased to slightly more than $41,000 and the mean had reached a high of about $56,000. The price of housing (still not the value) had increased by far more than one hundred percent. In 2019 the average house price was 10X annual income by 2022 it had rocketed to 20X annual income.
In 2019 if you were seeking a $250,000 mortgage the vast majority of income earners simply didn’t qualify, between 2020 and 2022 everyone qualified just lie about your income, get a cosigner and you’re in! You have more than half a million dollars worth of debt on the mortgage alone and you own nothing (except debt). Now, I am not an accountant but I do understand that every entry needs an offset – when you borrow money you pledge to pay back much more than you borrowed to someone who has far more money than they need.
Homeowners, lost their shirts during this fervour, literally, the smart ones got out, they realized that paying $7,000 per month mortgage was not liberating, it was the path to wealth, they were simply lining the pockets of someone else who already had high levels of wealth. In short people had become total debt slaves. Debt slavery does not lead to financial success.
Housing, except for the very rich, is not an investment opportunity, and being the titled owner of a house does not mean you have a loaded ATM at your fingertips. However, many people thought it did, taking out multi-layered mortgages, increasing their monthly expenditures (borrowed money must be repaid with interest). When you buy a house you are buying place to live, to raise a family and ultimately to retire.
If you did the right thing, saved for a downpayment, bought an affordable (to you your income) house, then aggressively paid down the mortgage – you would have a cheaper place to live when you retire. You would only need to pay property taxes, utilities and insurance, freeing up your pension money. Sadly more Canadians than ever are not only carrying existing mortgages into their retirement but they are also taking out new mortgages to pay for necessities or to fund the start up of their children or grandchildren.
The government wants you to believe that it’s all your fault, you don’t understand how to budget, the boomers did it, you need to more financially literate, etc. None of these bureaucrats have ever read the standard terms of a mortgage agreement and to be honest the majority wouldn’t understand them if they had read them. The reality is a very different story, the government foisted debt on the entire population in order to protect the banks from themselves.
Canadian banks are totally debt dependent, but the problem, economically, strategically and financially, is they have painted themselves into a corner from which there is no ready escape. Banks engage economists to help them negotiate the turbulent waters they have created, they remodel debt in the hopes that somehow it can be sustained longer – until some other economic force emerges, such as a major global conflict, or a total transfer of wealth.
The rescue is not coming, the debt is too deep, Canadians cannot afford to live on their incomes, they need debt for groceries, utilities, transportation and of course housing. The banks did not only cause a debt trap for the people of this country, they created a debt trap for themselves. The banks will collapse if they are forced to stop lending – in response they provide more debt vehicles, higher limits, and minimum monthly payments that are so low they can’t even cover the interest accrual.
House prices have, in our market, dropped almost 30% since February 2022 – the turning point. But they haven’t dropped enough to return to affordability. Some folks are selling up and moving down, to cheaper, more affordable housing. Realtors and mortgage brokers are desperately trying to service a deluded client base that believes house prices never drop! Banks are choking the release of powers of sale in order to try to maintain price.
In fact the banks are getting up to all kinds of skulduggery to slow the inevitable correction. Banks are allowing blanket appraisals that they know are completely fake representations of worth. They are selling with NDAs (non-disclosure agreements) to mask the fact that they are selling short without full transparency – no regulatory involvement, and no accountability.
Ask any bankrupt about their financial goals and top of the list is buying a house, not because they want a safe affordable place to live, but because they want access to the same ATM as their friends. Poor people see their homeowner friends accessing lines of credit, consolidation loans and other forms of wealth transfer that are not available to themselves. But don’t expect the media to ask the germane questions.
Given the current state of Canada’s economy, with the slowest growing economy in the industrialized world, low employment (18 million people in Canada have full time jobs, defined as working more than 30 hours per week at a series of gig-type jobs). Some 15 million people report incomes that do not involve full time employment. Roughly 26% of the 18 million FULL TIME workers, earn over $100,000 per year, that is about 4.68 million people, 14% of all income earners or about 7% of all people living in Canada..
We use $100,000 as an indicator of a decent income because thirty years ago the Harris government in Ontario released the so called “Sunshine List” – the idea was to shed light (sunshine) on government employees who earned in excess of $100,000 per year. But that $100,000 in 1996 is worth less than $53,000 today – adjusting the baseline measure of $100,000 to meet the reality of living in 2026 requires an income of $189,152.54 – which is only available to about 2% of the entire population of Canada.
The question you need to ask is not “why are house prices so high?” the real question is “why are my wages so low?“….