Canadian home prices have grown along the value of the U.S. dollar over the past five years—and the loonie has demonstrated a corresponding movement, with an almost on a one-to-one correlation, towards the opposite direction in the same period.
In a September 6 analysis piece, Better Dwelling
Toronto editor Kaitlin Last noted that the Canadian dollar has depreciated by 27 per cent versus the greenback since 2011, with Canadian home prices have increased by 26 per cent.
“That’s within one percentage point if you’re counting,” Last wrote. “It could just be a freakish coincidence, but not likely.”
“Another way of looking at it is the value of labour has depreciated, but the value of homes have stayed the same. Canadian land is maintaining its value, but your labour isn’t.”
As an “inflation sensitive asset”, real estate is especially susceptible to even the most minor changes in the values of currencies.
“It doesn’t mean you can’t make money, but it does mean the money you make will more likely resemble the true cost of goods rising,” Last explained. “In [real estate], the cost of doing business in American dollars – which is how we price almost all of our goods in internationally.”
The logical conclusion, Last warned, is that a depreciating loonie means that Canadian consumers are actually getting shortchanged compared to their American or Chinese counterparts when buying Canadian real estate.
“Canadian home prices aren’t appreciating, you lose around 9% on the average benchmark price,” she said. “This is actually a disturbing trend if you think about it – things don’t just suck for us. We’re being devalued on a global scale.”
“If the Canadian dollar moves lower, we might see this trend continue. Actually, as long as Canadians can borrow the difference it will likely continue. We’ve already racked up epic amounts of debt dealing with stagnant wages, but we haven’t really acknowledged this at a national level yet.”
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