Are Home Prices Peaking? um, yeah

This article asks that age-old question: Are home prices peaking? A recent report from Scotiabank says that each city needs to be evaluated on its merits, and that

Toronto, for instance, has seen a big rise in home prices over the past decade, but it’s happened fairly gradually, with prices going up by about 4% a year. The steady trend suggests that current prices are sustainable, at least for the short term. In comparison, the increases in Vancouver, Saskatoon, Calgary and Edmonton have been far larger and more sudden. “There is growing evidence of overvaluation in home prices in some parts of the country,” writes Adrienne Warren, a senior economist at Scotiabank. She adds that she anticipates a “cooling in both housing demand and price appreciation in the months ahead” across Canada.

A new report from Royal Bank says that “conditions in Saskatchewan, Alberta and British Columbia warrant caution.”

A professor from the University of Toronto says that:

The key factor for real estate forecasters to look at is affordability, which measures the percentage of our incomes that we spend on our homes. Affordability is vital, because when residents can no longer afford local homes, prices stop rising. A lack of affordability led to the 1990 housing bust in Toronto. At that time, the average Torontonian with a detached bungalow was spending just over 60% of his income on housing. Right now, Torontonians are spending about 45% of their incomes on housing.

And how affordable is housing in Vancouver right now?

 In Vancouver, owners of detached bungalows spend an incredible 71% of their incomes on housing.

Surely the 71% figure must be a percentage of after-tax income. If it were as a percentage of gross income, after income taxes are taken into account there would be virtually no money left for food for the average detached bungalow owner. Yep, home prices in Vancouver have peaked alright.

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