Do the fundamentals justify Saskatoon's housing price appreciation?

Over the long term, housing is based on the fundamentals of inflation, incomes,rents, affordability and interest rates. Since the average house price in 1998 was 100k, Saskatoon has experienced about 200% growth in twelve years. In the years 2005 to 2010 the growth was about 100%. 

Lets see if house price growth is justified by looking at the fundamentals.

Inflation
What was inflation at that time period?

According to the Bank of Canada's inflation calculator inflation growth from 1998 to 2010 was 28%.  Since 2005 until now total inflation growth was 7.8%.  Granted this is for the whole of Canada; Saskatoon did experience more inflation than the national average. Let's say 40% for the 12 years.  Does not matter, this time period was not highly inflationary looking at the calculator.

Incomes
Well, maybe it was because of wages.

The median household income for Saskatoon in 1998 was 49k and in 2010 the median household income is estimated to be about 82k.  Over the twelve years, median household income has increased about 67%.  So wages have increased, but they have not increased to the point to justify the appreciation of house prices to we have experienced.  House prices have increased almost 3 times compared to the increase in wages over the last twelve years.

Rents
Average rents have only gone up 75% over the last twelve years, so it was not because of rents.

Interest Rates

From 1998 to 2008 interest rates dropped only a couple of points with an up and down pattern in between.  Emergency interest rates have been in place over the last 2 years and are slowly climbing from the bottom.

 

Affordability

Affordability is the measure of what a household pays towards shelter each month. In the 1st post of this blog there many calculations of affordability and house price to income etc.  Currently, a detached home in Saskatoon costs about 32% of income.  Lower than the over 40% Saskatoon had in 2008.  This is factoring in emergency interest rates, a 75k down payment over 25 years for an average household. Emergency interest rates will not always be here and not everybody has 75k for a down payment unless they are move up buyers. According to TD,  Saskatoon's affordability was worse only in Vancouver and Victoria in Canada.  While RBC's report shows that Saskatoon's affordability is worse in Vancouver, Victoria, Toronto and Calgary.  Whatever the measure, Saskatoon's housing is definitely not affordable especially when compared to previous time periods.

 

Every bubble starts out as a boom that is justified by the fundamentals.  But somehow and a certain point of time the boom is not justified by the fundamentals and then it becomes a bubble. Saskatoon experienced a housing boom that was justified in the early 2000's with interest rates being lowered, incomes were rising, confidence in the local economy was good.

But after that, all common sense was thrown out and the market experienced bidding wars, houses were bought sight not seen, apartments were converted into condos, prices ended up doubling in just a few short years with the belief that real estate is the best investment one can make. This last sentence could describe the bubble experienced in the hundreds of cities from list of countries in the global housing bubble.
There are numerous countries that experienced a housing bubble at different time frames this past decade.  Looking at the fundamentals proves we are not different.