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For more than a decade, the most pointless exercise in personal finance has been questioning the rise of house prices. In that time, we’ve had a global financial crisis and two years of a pandemic. Housing ate it all up.

We began 2022 with a new all-time high for average resale house prices that was built on double-digit increases from year-earlier levels. Does this extreme growth make sense? Here are five signs the housing market is out of control:

(Lots) more million-dollar cities

Move over, Toronto and Vancouver. The latest real estate numbers show that there are at least seven more cities or regions in the country where the average resale house price is more than $1-million: Oakville, Orangeville, Hamilton, Mississauga, and York and Durham regions (all in Ontario), plus the Fraser Valley in British Columbia.

Now, check out the U.S. housing market. Realtor.com reports median selling prices of around US$1.3-million for San Francisco, San Jose and Manhattan, and between $900,000 and $950,000 for Los Angeles and Bethesda, Md. A sampling of other big U.S. cities: Seattle at $720,000, Boston at $699,000, Phoenix at $423,000, Atlanta at $375,000 and Chicago at $315,000.

Convert to Canadian dollars and you have Boston on par with Chilliwack, B.C., and Seattle in the same zone as Guelph, Ont. Chicago priced in Canadian dollars is less than half the price of Barrie, Ont.

U.S. house prices are hot right now and there’s talk that seems quaint by Canadian standards about affordability slipping away. But demand to own homes here is on a different level. It’s sufficient to turn small cities, which were once quiet, into real estate hot spots.

Prices up by almost half in just two years

The average resale price in January, 2020, arguably the last month of the pre-COVID era, was $504,350. January, 2022, gave us an average price of $748,439 – an increase of 48.4 per cent in 24 months.

The average annual growth rate in resale home prices from 2011 to 2021 was 6.6 per cent, data from the Canadian Real Estate Association show. And that was big-time growth, given the average inflation rate of 1.6 per cent in those years.

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Recent price growth in house prices has been helped by the special factors of low interest rates and pandemic lockdowns that, first, triggered a desire to move to bigger homes and, second, helped people stockpile the cash they needed for down payments.

But price growth today seems out of whack compared with not only historical trends, but also what’s happening elsewhere in the country. We seem to be making progress in getting through the latest COVID wave, but there are big economic challenges ahead and political divisions are widening. Immigration is on the rise, but how many newcomers can afford to buy a house at today’s prices?

Income growth has been left in the dust

The pandemic has created a lot of job churn, which means people leaving jobs and finding new ones. Employers find they have to pay more to lure or keep employees, and this is starting to put some upward pressure on wages.

The December jobs report from Statistics Canada said average hourly wages increased 2.7 per cent on a year-over-year basis, but some sectors are seeing higher growth than that. Late last year, Statistics Canada reported that wage growth that exceeded the inflation rate, then at 4.3 per cent, in 41 per cent of the 355 occupations it tracks.

House prices have long risen at higher rates than income. What’s noteworthy today is that wages are showing unusually high growth in some areas, yet housing is pulling further ahead than ever. There is zero linkage between growth in house prices today and the ability of the Canadian population to afford them.

Inflation and the interest rate outlook are worsening

Inflation clocked in at a new 30-year high of 5.1 per cent in January compared to a year earlier, and there’s no sign yet of relief ahead. You can still lock in a pretty good mortgage rate right now, and you absolutely should do so if you intend to buy this spring. But the cost of other things, notably food and gasoline, is rising in a way that undermines the affordability of owning a home.

The intensity of rising inflation has economists wondering if interest rates will rise faster and further than previously anticipated. If this happens, people renewing mortgages in the years ahead may find their payments rise in a way that derails household budgets.

The inflation and rate outlook argue for caution in home buying, but that’s not how people are reacting. Growth in house prices scares people into thinking that if they don’t get into the market now, they’ll never own a home. Pending rate hikes are seen as a reason to buy now, whatever the cost.

No one wants to sell

The monthly reports on home sales from CREA keep hammering on the theme of historically low numbers of homes for sale at a time of massive demand.

Why should people sell if prices will be higher in a month? And, where do you go if you sell? Unless you move to a cheaper location, you’ll be buying a home that has appreciated similarly to your own.

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