More Average House Price and Average Income Graphs for Saskatoon

 

In the first graph we see that house prices grow at about the same pace as incomes until 2006.  Then the house prices rocket skyward.  How can house prices rocket skyward when incomes stay at about the same level as inflation?

It is no secret that we have used mortgage debt in Saskatchewan to "catch up" to other jurisdictions as house prices have outgrown income growth 4 to 1 since the boom began.  Remember that house price growth is a function of income growth plus mortgage debt growth. 

How should house prices appreciate in the long term? From The Great Housing Bubble: Why Did House Prices Fall? by Lawrence Roberts.

"Since 1890 houses have appreciated at 0.7% over the general rate of inflation. Over the long term house values are tied to incomes because most people buy houses with mortgages for which they must qualify based on their income. Inflation keeps pace with wage growth because people will bid up the prices of goods and services with their available income. Therefore, over the long term house prices, wages and inflation all move in concert. There are short-term fluctuations in this relationship due to variations in financing terms, migration patterns, employment, local limits on construction and irrational exuberance, but any such deviations from the mean will be corrected over time by market forces. As an investment, houses serve as a hedge against the corrosive effect of inflation, but over the long term appreciation much in excess of the general rate of inflation is not possible. In this regard, houses are little better than savings accounts as an asset class, and they are inferior to stocks or bonds in the long term."
 

While this does not mean Saskatoon will have big housing bust,( Saskatoon has one of the best chances for a soft landing) we should give credit to where credit is due on how house prices have risen in this city.