“The best measure of affordability is the ratio of house price to household income; prior to 2000, this ratio seldom rose about three times, fluctuating between two and three for decades. In the U.S., just prior to their crash, that ratio hit 4.4 times and then dropped down to about 2.5 and now is at three,” Hilliard MacBeth, portfolio manager with Richardson GMP and author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash
told our sister publication, CREW. “In Canada the average ratio today is about five times, with Vancouver over 10 times and Toronto about six times. To get back to three times the average ratio would have to drop about 40 per cent, from five to three, or in the case of Toronto 50 per cent from six to three.”
The bold prediction drew the ire
of MortgageBrokerNews.ca readers Wednesday night.
But according to MacBeth, Canada’s housing market entered a bubble in 2000 and has been inflated by rising commodity prices; which is a risk to homeowners, with household debt almost doubling from 2005 to 2015.
It’s a controversial stance, but the analyst predicting a 40-50 per cent price correction explained how he arrived at his dire estimation.