yes you are a little, but you’re thinking short term (your recency bias) and I’m talking long term. You are taking a 75 year average (the rate at which house prices tick along) and then looking at a 10 year section and say ing ‘it’s not adding up to that’
Inflation has averaged about 3%/ year for the last century.
Homes have grown about 3% a year for the last century. If you look at a boom period, sure its steeper. If you look at a correction, it’s negative slope. Average it out, and you’re at 3%.
Look at the last peaky time back in 1989. $290,000?
Today, 26 years later we are at around $575,000?
Guess what $290,000 compounded at 3% for 26 years equals…$625,000
So we’re actually a little BEHIND pace from the last peak. We’ve only grown about 2.75%, not 3.0%. We’re bang on for the long term though.
Go to the previous bottom in 1996 if you want to get the best possible growth rate out of the last 30 years. $220,000 or so in 1996, yes? This is the worst possible comparison and shows only boomtime growth remember…the growth rate should be HUGE right?
It’s 5.0%. It’s really not that extreme.
Compounded $220,000 at 3% for 19 years = $385,000. The fact we’re looking at a linear chart for a compounding item is what makes the steepness look a little off. If we used a logarithmic chart it would look less funky.
So we’re well ahead of that pace. People think that because a 1 year period was a 9% gain, suddenly there’s a bubble. We need perspective. Further, people who buy new builds and see a 25% bump in 2 years think everything is going nuts ,but that’s again not ‘the market’…that’s a one off.
Don’t also forget that you’re looking only at Toronto, the hottest market in the country.
