The real estate market in the USA and Canada: common sense about wealth

Earlier, in 2017, I wrote about how outrageously high housing prices are in Canada. It's worth noting that the country essentially skipped the housing crisis following the Great Financial Crisis. However, in the years that followed, the situation became even crazier. Canadian housing prices may remain irrational longer than you can stay liquid or something like that. What's crazy is that housing prices in Canada would need to drop by another 40% or more to return to the growth of real housing prices in the U.S. since 1975.

Since the beginning of 2005, Canadian home prices have increased by an astounding 142% in real terms (after inflation). This includes a 19% decline in the last 9 months of 2022. From 2005 to 2022, U.S. home prices rose by just slightly less than 26% in real terms. The rise in Canadian home prices makes the rise in U.S. home prices seem minuscule in comparison. Year to year gains and losses also stand out: more gains and more losses in Canada.

Sale house in New York 6 895 984,00 $

USA,New York

3 Bedrooms

4 Bathrooms

235 м²

Rent townhouse in Brooklyn 14 930,00 $

USA,Brooklyn

5 Bedrooms

4 Bathrooms

469 м²

Sale house in Houston 1 985 637,00 $

USA,Houston

4 Bedrooms

4 Bathrooms

435 м²

Sale other properties in New York 8 229 158,00 $

USA,New York

3 Bedrooms

4 Bathrooms

373 м²

Sale house in Brooklyn 2 727 659,00 $

USA,Brooklyn

8 Bedrooms

4 Bathrooms

529 м²

Sale flat in New York 5 126 452,00 $

USA,New York

2 Bedrooms

2 Bathrooms

234 м²

It's like the S&P 500 versus the Nasdaq 100. The differences between the two markets look even more pronounced when you compare real gains in house prices to real gains in disposable income over time. I used the same scale to emphasize the differences here.

Yes, real housing prices are currently rising faster than real disposable income in the United States, but this relationship has remained quite stable over the past 50 years. Incomes have kept pace with housing price increases after accounting for inflation. However, in Canada, things have gone completely off the rails for the last 20 years or so. Our friendly neighbors to the north are in a completely different stratosphere compared to us.

I'm not saying this to make it easier for you to buy in the US right now. Availability here is still no better than ever. We just hit another new historical high for average monthly payments (via Redfin): Just be grateful that you're not trying to buy a house in Canada... it's even worse there.

Michael and I talked about the crazy housing prices in Canada and much more in this week's latest Animal Spirits video.

We talked about how the Canadian mortgage market differs from how it's done in the United States last month on Ask the Compound. Subscribe to The Compound so you never miss our amazing videos.