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BMO: ‘Your House Makes More Than You Do’

This can't last.
An aerial view of houses in Toronto, using a tilt-shift lens.
An aerial view of houses in Toronto, using a tilt-shift lens.

If you own a home in Montreal, B.C.’s Fraser Valley or just about anywhere in Ontario, there’s a good chance your house is earning more money than you are.

With home sales on a tear across Canada this winter, “house prices are not only rising faster than family income, they are rising more than total annual income,” Bank of Montreal senior economist Sal Guatieri wrote in a client note Wednesday, titled “Your house earns more than you.”

That’s not necessarily true everywhere. If you live in the Prairie provinces, the single-digit price growth there wouldn’t match a median household income, but it’s true for virtually every market in Ontario, while many places in B.C. ― Chilliwack, Vancouver Island and the Okanagan Valley ― came very close.

Watch: Low inventory means price increases for real estate aren’t done. Story continues below.

In the Hamilton-Burlington real estate market southwest of Toronto, the benchmark house price rose by $154,000 in the past year, to $786,600. That’s double the $75,464 median household income for the area, as reported in the 2016 census.

“It’s clearly unsustainable in the long run, as affordability would deteriorate pretty quickly if it continued,” Guatieri wrote in an email to HuffPost Canada.

Still, Guatieri doesn’t see a correction in the cards this year “as demand is simply too strong relative to limited supply, but we do expect sales levels and price growth to moderate as affordability weakens and pent-up demand from teleworkers ebbs.”

One thing that could take some steam out of house prices would be rising mortgage rates, and there is some chance of that in the coming months. Mortgage rates tend to move with the interest paid on government bonds, and those have jumped in recent weeks.

In a client note Wednesday, Capital Economics estimated that the fixed, five-year discount mortgage rate will rise to 2.3 per cent this year, from 1.8 per cent today. If the difference between mortgage rates and government borrowing rates returns to normal ― it’s currently very narrow ― mortgage rates will hit 2.8 per cent, economist Stephen Brown predicted.

“We doubt either scenario would send house prices into reverse,” he wrote in a client note, adding that this would reduce the maximum purchase price by only a few percentage points.

BMO’s Guatieri doesn’t expect much of an increase in mortgage rates for one key reason ― the Bank of Canada won’t allow it.

“Central banks are pretty determined to keep the stimulus taps wide open,” he wrote.

Select cities where houses are making more than households:

Greater Toronto

Benchmark house price: $941,100
House price change, Jan. 2020-Jan. 2021: $100,082
Median household income: $78,373

Greater Montreal

Benchmark house price: $434,200
House price change, Jan. 2020-Jan. 2021: $62,000
Median household income: $61,790

Fraser Valley, B.C.

Benchmark house price: $911,300
House price change, Jan. 2020-Jan. 2021: $75,900
Median household income: $69,289

Ottawa, Ont.

Benchmark house price: $561,000
House price change, Jan. 2020-Jan. 2021: $102,000
Median household income: $86,541

Kitchener-Cambridge-Waterloo, Ont.

Benchmark house price: $660,900
House price change, Jan. 2020-Jan. 2021: $126,800
Median household income: $94,057

Mississauga, Ont.

Benchmark house price: $988,500
House price change, Jan. 2020-Jan. 2021: $107,000
Median household income: $83,018

Simcoe, Ont.

Benchmark house price: $478,800
House price change, Jan. 2020-Jan. 2021: $108,100
Median household income: $76,489

Benchmark house prices from the Canadian Real Estate Association. Household income data from the Canada Census 2016.

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