One such party is Garth Turner, the self proclaimed financial guru who in a recent blog posting claimed that "How can values rise 81%, when incomes didn’t budge?" In the same posting Garth attacks the real estate profession and takes a shot at our local real estate Board claiming that we are "...the voices of real estate desperation, as some people in this business try anything they can to battle back the dragons of reality." Conversely, Garth makes a living by his selling books such as "After the Crash" which propogate the "dragons of reality."
Well it would appear that the Canadian Imperial Bank of Commerce (CIBC) for one doesn't share Garth's opinion on Canadian home prices versus income any more that I share his opinions on real estate and REALTORS®, a profession that I work hard at and am proud to be a part of.
The accompanying graph prepared by CIBC clearly reflects that home prices compared to the disposable income of Canadians had remained largely in balance. Except for a brief period in the late 1980's and again from 2005 or so onward, disposable incomes have remained above the resale home price index. Even when the trend was reversed and Canadian home prices overshot personal incomes, it was nowhere near what has happened in the U.S. Numerous news stories have persisted wherein American consumers took on mortgages that were 105% or more of their home's value which was already inflated. Further, I have read countless stories of individuals in the U.S. with modest incomes that were now in foreclosure as they could no longer afford their $300,000 or $400,000 mortgage, a mortage they undoubtedly should have never been granted in the first place.
Real estate has always proven in the long run, to be the safest and soundest investment. Even if as stated in the current issue of Macleans home prices were top drop 20% that pales in comparision to drop in the stock prices and market capitalization of companies such as GM, Nortel and others. Canadian consumers have long had most of their equity tied up in real estate. With Nortel shares trading at 10¢ compared to their one time high of $124 and General Motors at $1.85 versus even their 52-week high of $25, I'd take a 20% drop in my house price any day.