Quote:
Originally Posted by MarchHare
Right, but the entire point of the article is to point out that average salaries have not kept pace with the price of housing or post-secondary education. If an entry-level Calgary job in 1980 paid $30k per year and a typical starter home cost $100k, then we should expect an entry level Calgary job in 2012 to pay $120k per year since a typical starter home is now $400k. Obviously that's not the case.
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But that completely ignores the month to month costs of owning a house which (rightly or wrongly) is all most people seem to care about and what drives prices. And low interest rates and long amortizations have driven down monthly costs for a given amount of money.
A 3:1 ratio of price to income would mean if the average family income was 90K that the average house should only be $270K. But under current interest rates that house could be had for slightly over $1100 a month with basically no money down. I don't think it's reasonable to expect the market to maintain prices at a point where the average family is only spending 15% of its gross income on rent/mortgage.
As interest rates go up, housing prices will come down, but price to income ratios don't mean a whole lot in a prolonged period of historically low interest rates. Long term they're good guidelines to follow, but most consumers aren't that rational or forward thinking so they'll sign up for whatever they can afford right now even if it's unsustainable.
I guess I just don't think comparing an era where you can get a 10 year mortgage for slightly over 4% to one where you'd be lucky to get any mortgage under 15% in absolute terms makes a whole lot of sense. Of course the price to income ratio is going to be lower in the higher interest rate environment.