After a decade marked by several seismic events on the housing market, both Canada and the U.S. are currently trying to deal with their economic challenges and to manage their housing policies so as to prevent future crises. However, with bearish analysts warning about an impending disaster and bullish economists stating the opposite, it looks like only time will tell where the two neighbours are headed.
To analyze the evolution of the two housing markets and to assess their current status, our analysts extracted data from ten years ago, as well as the most recent reports available. They looked at key metrics like average home price, rent, homeownership rates, and changes in the countries’ median incomes, among others, and did a side-by-side comparison. Here are the main findings:
- Average home prices have been going up at dizzying speed in Canada (56% compared to 2008), but the U.S. has seen a more toned down increase at 24%. Homeownership rates are falling in both countries despite demand.
- Canadians’ median income only increased 15% in the past decade, and their American counterparts are not looking at much higher rates either (18% compared to 2008). Coupled with fast-increasing home prices, it makes housing affordability deteriorate much faster north of the border.
- The most expensive markets in both countries are located on the West Coast, and probably to the surprise of no one, they are Vancouver, BC and San Francisco, CA.
- The average amount of space per person has doubled since the 1970’s both in the U.S. and in Canada, due to a decrease in the number of people per household, but also due to an increase in the size of the average home built.
U.S. vs. Canada: Two World Leaders at a Crossroads
A Look at the Economic Context
At the beginning of the new millennium, the U.S. was experiencing increasingly relaxed standards for mortgage loans, banking deregulation, and a general atmosphere of “irrational exuberance”, meaning people were overly enthusiastic about the direction of the market and the economy. From 2000 to 2006, home prices were increasing at a disquieting 9% per year, compared to only 3% per year up until that point, according to the Bureau of the Census.
At the same time, sub-prime mortgages were gaining more ground, driving several market analysts to express their concern about a potential bubble in the real estate sector. However, the damage could not be undone and the U.S. marched head first into one of the worst crisis in its history, the housing crisis. The market crash started a dire recession period in the U.S., and it rippled globally. Close to 9 million jobs were lost at a national level between 2008 and 2009 and there was a household net worth decline of almost $13 trillion, as reported by the Federal Reserve.
No other markets experienced losses and problems of the same magnitude. Canada avoided almost completely the real estate bubble and the ensuing crisis from 2007-2009, mostly due to its stricter policies and preference for variable-rate mortgages. However, Canadian economy also went through a time of economic turbulence following the oil price crash from 2014 and the burst of China’s speculative bubble.
And now, 10 years after the housing crisis that destabilized the U.S., some analysts claim Canada will face a similar scenario if it stays the course: house prices are marching on ahead of wages, the household debt currently represents more than 100% of the country’s GDP, and the NAFTA talks add uncertainty to the whole situation.
U.S. vs. Canada: Rocky Past, Unpredictable Future
Homeownership Dream is (Briefly) Deferred
Although only the Americans talk about homeownership as an integral part of the American Dream, Canadians also feel strongly about their aspirations as homeowners. And rightly so. Research on the subject reveals the extensive economic, social, and psychological benefits associated with owning a home.
But with average home prices rising at an alarming pace in Canada, buying a home becomes more and more difficult. Due to a staggering 56% increase since 2008, Canada’s average home price went from CAD $304,663 to CAD $475,591 in just ten years. The U.S. didn’t follow a similar path, as market conditions south of the border were much different: after a 24% increase, the average home price went from USD $245,200 in 2008 to USD $303,200 in 2018.
The loonie appears to be making a recovery, but during the past decade it lost 25% of its power compared to the American dollar. The Canadian and the American dollars went from almost perfect parity in August 2008 (CAD $1=US $0.95), to a more sizable difference in 2018 (CAD $1=US $0.77).
In the U.S., homeownership rates reached a peak towards the end of 2004, when the percentage of homeowners settled at 69.2%, only to start decreasing in 2007. By 2015, the share of homeowners in the U.S. fell to a level that hasn’t been seen since 1965, when data gathering was just starting: 62.9%. After three years of recovery, the share of homeowners in the U.S. is currently pegged at 64.2%.
In Canada, homeownership rates rose at a steady pace for more than four decades, hitting an all-time high of 69% in 2011, but the most recent StatCan results show that percentage went down to 67.8% following the economic downturn from 2014.
However, there are more troubling signs indicating Canada might be heading for an unsettling future: household debt exceeds 100% of GDP, according to data released by Bank for International Settlements, the average home price went up 56% in ten years, while the median wage per household only increased 15% during the same period, and loose lending is on the rise.
The average rent in Canada went up 25% in ten years, and the U.S. saw a similar jump since 2008. However, all cities were not created equal, neither in Canada, nor in the U.S. The New York and San Francisco housing markets are way ahead of all the other urban centres, and show no signs of slowing down, much like Toronto and Vancouver in Canada.
Sky-high prices are not Vancouver’s worst problem though: despite severe affordability issues, the provincial government agreed to a 4.5% maximum allowable rent increase for 2019, which is the largest rent increase since 2004, when the ceiling was set at 4.6%.
U.S. vs. Canada: Unaffordability Nightmare Looms Large
Increase in Median Income No Match for Home Price Growth
Average rents and home prices have grown at a faster rate than incomes and inflation, both in Canada and the U.S. The U.S. saw an 18% increase in its median income per household since 2008, while Canadians’ median income went up 15% in the past decade. Also, the average hourly salary went from CAD $20 to CAD $27 in Canada (a 33% growth), and from US $18 to US $23 in the U.S.
Closely linked to the median wage issue, housing affordability has a major impact on standard of living. According to Demographia’s International Housing Affordability Survey, which uses the “Median Multiple” (median house price divided by median household income) to assess housing affordability, in 2008 Canada had a 3.1 rating, meaning the national market was only “moderately unaffordable”. In 2018, Canada’s rating according to Demographia jumped to a 3.9 rating.
The U.S. scored 3.6 on the affordability scale in 2008, making the American housing market slightly less affordable compared to the Canadian one, but it was still in the “moderately unaffordable” category. Since then, the U.S. market only went up 2 pp, and its affordability rating is currently at 3.8.
Housing affordability varies wildly in Canada and America, from province to province and state to state, but it’s mostly individual major markets in both countries that are pushing these rates higher and higher. According to RBC, “Canadian housing affordability is now at its worst level since 1990.” So which are the markets that are pushing these rates higher and higher, forcing renters and owners with a mortgage alike to spend more and more of their income just to cover housing costs?
U.S. vs. Canada: Jaw-Dropping Prices and Luxury Real Estate
Most Expensive Markets Increasingly Out of Reach
In Canada, cities like Toronto and Vancouver lead by a great margin, but it is in fact the latter market that is considered the most expensive in the entire nation. In Vancouver, the median sale price of a home reached a startling CAD $1,416,729 in 2018.
Vancouver’s correspondent south of the border is San Francisco. Here, the median sale price for a home is currently CAD $1,623,377. However, the median wage in SF is much higher than in Vancouver, so of the two markets, residents from BC’s largest city definitely drew the short straw.
As for the most expensive home for sale in the two countries, none of them are in the two most expensive cities. With an asking price just CAD $1,000,000-shy of $60,000,000 (and down from CAD $65M), Chester Hall is described as “a trophy property of the highest order”, and rightly so. Boasting 27 rooms, a tennis court, inside and outside pools, and even its own private chapel, the estate in Oakville, ON was completed in 2006, “following five years of careful contemplation, planning and construction”.
Compare that to the Chartwell Estate, a 15-bedroom, 28,135-square foot located in one of the most opulent neighbourhoods in Los Angeles, Bel Air. “Inspired by eighteenth-century French Neoclassical design”, this luxurious piece of real estate is definitely royalty-worthy. And its CAD $453,812,601 price tag definitely places this property in a league of its own.
U.S. vs. Canada: The Brighter (and Bigger?) Picture
Increase in Amount of Space per Person Is Result of Two Factors
As for the average people, they, of course, live in average homes. But although the average amount of space per person doesn’t come anywhere near the square footage offered by some of the most expensive homes for sale, according to some studies, this space has doubled since the 1970’s in Canada as well as in the U.S. Both Americans and Canadians owe this increase in space to two factors: first, the size of the average home increased and second, the number of people in the average household decreased in both countries.
However, very few of the people living nowadays, whether they are renters in New York’s micro-apartments or homeowners in Toronto and Vancouver, could testify to this increase in the amount of space. Given how more and more people want to live and work in the U.S. and Canada’s biggest business centres, (over)crowded might remain the name of the game. And with surging home prices and increasing unaffordability in many markets in both countries, space could become, at the very best, just a secondary problem.
- For this study, we looked at key metrics, such as average home price, average rent, homeownership rates, median income per household, average hourly salary, housing affordability, and average home size for both countries, comparing numbers from 2008 to values in 2018; we also looked at the most expensive cities and the most expensive homes for sale in both countries at present.
- Other important sources include: Forbes, Financial Times, CBS News, The Federal Reserve Bank, DailyHive, RBC, PadMapper, RENTCafé, Demographia 2008, Demographia 2018.
- *All amounts, including median wages, home prices, and average rents in both countries are expressed in Canadian dollars.
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