One measure commonly used to assess housing market conditions is the house price-to-income ratio. Computed by dividing the nominal house price index by nominal income per head, it is a gauge of whether housing is affordable for the average buyer. If the ratio rises, houses are becoming less affordable and, if it falls, houses are becoming more affordable. This measure allows us to compare housing markets over time and across jurisdictions. This ratio can also, in hindsight, help identify housing booms and busts.

More recently, house price-to-income ratios are trending upward nearly everywhere – global housing is becoming less affordable. However, Japan remains a conspicuous outlier. This is largely because the Japanese system “is extremely laissez-faire…. that means it is highly flexible in responding to social and economic change.

At the other extreme is Canada, where deeply negative real interest rates, record immigration, and supply shortages, among other reasons, have sent prices soaring. In any case, the unprecedented leap in house prices has now turned into a political hot button issue in Canada.  

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