Increasing housing prices = economic growth

This week Statistics Canada released their monthly New Housing Price Indexes for 21 urban areas in Canada. Because the three southern cities in New Brunswick are small, they lump them into one area for the purposes of this survey. The Housing Price Index data is interesting because most economists agree that rising house prices usually are a sign of strong economic growth. The survey uses 1997 as a base year (=100). There are two interesting facts from this survey. One, since 1997, new housing prices in the three NB cities have only increased 5.8% (less than the rate of inflation) – the 4th lowest of the 21 urban areas covered. You might expect places like Toronto and Calgary to have faster growth rates in the cost of housing but it is very interesting to point out that the cost of housing has increased significantly faster in all three of the other Atlantic Canadian urban areas – Halifax, St. John’s and Charlottetown. The other interesting finding from the survey is that housing prices have only rose 2% in the last year – the third slowest rate of increase in the country. This is particularly surprising to those of us in Moncton where it seems housing prices have skyrocketed in the last year or so.

Now, you might be inclined to say “what are you complaining about, low cost housing is a good thing, not a bad thing!” and you would be right when you are talking about our pocketbooks. However, the fact that our housing prices have dramatically underperformed the other urban areas in Canada (and particularly Atlantic Canada) can be correlated to the tepid economic growth. Guess what? Job creation in these other urban areas has by in large outperformed us as well (as a tri-city area). When the economy grows strongly, housing prices go up – it’s that simple. Our urban economies have had weak growth and housing prices have stayed low.