2008 Recession Led to Widespread Affordability Problems

The 2008 financial crisis led to widespread housing affordability issues, but the US has not fared as badly as some. According to a new report from Point 2 Homes and Yardi Systems, Canada has been more dramatically impacted by the recession than the US. Home prices in Canada have increased by 56% in Canada, while incomes have only increased by 15%. This has escalated the country from a ranking of seriously unaffordable to severely unaffordable.

“Given Canada’s energy-driven economy, oil prices are strongly connected to the evolution of the country’s currency,” Cristina Jisa of Point 2 Homes tells GlobeSt.com about the unaffordability problems in Canada. “So if oil prices falter, the entire economy is affected. Moreover, the Canadian dollar was also negatively influenced by the trade tensions between the US and Canada.”

By comparison, the US has seen a 24% rise in home prices with incomes rising by 18% since the recession. As a result, the US has maintained a ranking as seriously unaffordable. “Both the US and Canada have severe affordability issues, but according to a previous Point2 Homes analysis, housing unaffordability varies wildly in both countries, with individual markets pushing unaffordability rates higher,” says Jisa. “It is not a generalized situation, but several markets have seen their home prices sky-rocket. These affordability issues mostly come from the discrepancy between the evolution of home prices and wages. Home prices are increasing at a much more rapid pace than wages, making it almost impossible for more and more people to be able to save for a down payment and afford a mortgage.”

Despite Canada’s increase in a housing unaffordability, the market has higher homeownership rates. In Canada, 67.8% of residents own a home compared to 64.2% in the US. Since 2008, homeownership rates have declined by 2% in Canada and 5% in the US. “Canada’s homeownership rates are higher than the US’s mostly because the US was extremely affected by the housing crisis that started in 2008, whereas Canada managed to bypass the crisis almost completely,” explains Jisa. “Although Canada went through its own economic troubles a few years later, the burst of China’s speculative bubble, coupled with the collapse of the oil prices affected the Canadian economy to a lesser extent than the housing crisis affected the American economy. Since homeownership rates were strongly affected by the housing crisis in the US, whereas Canada’s economic turmoil was less severe, the share of homeowners north of the border is higher than in the US.”

The unaffordability crisis in both countries is growing, and both the US and Canada have looked at legislative solutions to the problem. Other variables, however, could mean increased volatility. “Housing prices might continue to go up, although in Canada many measures have been taken to curb this trend,” says Jisa. “However, with so many economic factors influencing the evolution of home prices both north and south of the border, it is difficult to predict how the real estate market might evolve in the coming years.”