Saskatoon Median Family Income Growth: How has it grown and could it fall?

The growth in median family income in Saskatoon over the past decade or so has been quite impressive relatively speaking compared to the average throughout Canada. But it does not justify the increase in house prices in the same period. In 1998 the median family income in Canada was $47,300 while in Saskatoon it was $48,900.  Fast forward to 2008 and the median family income in Canada was $68,860 while in Saskatoon it was $77,740.
This is how Saskatoon's median family income has grown over the past few years.

2004 $59,900
2005 $63,600
2006 $68,300
2007 $72,970
2008 $77,740
In 2011, I am guessing the median family income in Saskatoon is about $85,000.  This is just an assumption, as the market crash and the lowering of interest rates would have an effect on seniors income and certain pension plans and even with wage growth median family incomes could have turned negative in 2009.  But for this exercise, we will assume it kept climbing a little more than inflation.

So $85,000 works out to be 73% growth in just over 13 years when inflation in Canada was about 30% in that same time period.  I don't have the exact number but inflation in Saskatoon since 1998 has grown about 35%.  Hey, that's great since average family income for Saskatoon in 1995 was less than in 1990 adjusted for inflation. Or maybe not, what is this all based on?

We can see that average total income has not really changed much for men. Woman in Canada have experienced some growth in wages, but this does not account for all the growth. So what else has increased total median family income? 
I have come up with two things.  The wealth effect caused by the rise in house prices which has led to a bigger participation rate.

The Wealth Effect Caused by the Expansion of Credit
One of my first posts was how the wealth effect that housing has on Saskatoon's economy. 
One estimates that a $100 rise in housing wealth leads to a $9 increase in spending. Another finds that increases in housing wealth generate three times the spending from stock-price gains. Together, higher home values and financial innovations have enabled homeowners to more easily tap housing wealth. Mortgage equity withdrawals have risen sharply recently relative to income.


With 100,000 Saskatoon homes increasing in value on average from $150,000 to $300,000 in just 5 short years, the amount of extra spending contributed towards Saskatoon's economy would be over 1.25 billion following the Dallas Fed study. 

It was not a robust economy that fueled the housing boom bubble at the beginning of 2006-07.  Actually, a CMHC report in the spring of 2006 showed that there was 3800 less people working in Saskatoon from a year prior. The report mentioned that they forecast Saskatoon to see 9% in house price growth but there was no mention that Saskatoon houses were " undervalued" and needed to rise 53%  the next year or over 30% the year after.

The expansion of credit fueled by low interest rates, loosening mortgage rules and financial innovations has given the appearance of a robust economy in Saskatoon over the past few years.  This expansion of credit fueled consumer spending, which pushed up employment and wage growth.

This chart is a bit outdated, as Canadian households debt to income of 148% is now higher than the Americans of 147%.  I don't have any numbers on Saskatoon households but I would believe that credit growth in Saskatoon has been more than the national average of the last 5 years.


Participation Rate 
The participation rate in Saskatoon is higher now than compared to the mid 90's. In 1998, the participation rate was 68%. In 2009, with an unemployment rate of 5.5%, the participation rate was 74.1%.  With more families have both people working, it only makes sense that income for families has gone up.  But 2010 has seen some weakeness in the job market for Saskatoon. 

We can see the percentage of women who are in the work force has grown more than men.  And women also had bigger wage increases than men "Between 2000 and 2008, average total income for Canadian women increased at almost twice the pace as it did for men, although women continued to have lower income levels."

On this chart, we can see that rate of young women with children who are working has steadily increased over the years.  Now is this by choice or by force?  According to the Vanier Institute, with debt levels so high and with the high cost of housing, many young women with children have no choice but to work just to make ends meet.

The expansion of credit fueled by low interest rates, loosening mortgage rules and financial innovations has given the appearance of a robust economy in Saskatoon over the past few years.  This expansion of credit fueled consumer spending, which pushed up employment and wage growth.

Conclusion
There was no new industry created in 2006 to justify house prices doubling in a few short years, unless you consider a housing bubble a new industry.  The growth in median family incomes is correlated with the rise in house values in the time period after 2005.  But the growth in median family incomes was not the reason that house prices jumped in value.  Rather, it was the expansion in credit by house values skyrocketing that pushed up median family income.  The expansion in credit fueled consumer spending and this created jobs.   The rising cost of living also forced more young women with children to enter the work force just to make ends meet.  Add in a larger participation rate and there you have it.

Even with the tens of millions of Federal government stimulus, increased Provincial government spending, population growth of 6,000, low interest rate environment, commodities rebounding and record spending by the city of Saskatoon, job growth in Saskatoon for 2010 was negative 4,300 jobs.  Now I am not suggesting that Saskatoon will revisit double digit unemployment any time soon like the early 90's but it is something to be aware of with a housing and credit correction upon the horizon for Saskatoon. 

A participation rate in the low to mid 70's is not sustainable for Saskatoon.  Once the wealth effect goes into reverse, and in a low inflation environment, Saskatoon will probably give up some gains in median family income. A lower participation rate is almost a guarantee. I don't think wages will drop, but it is possible as it has happened in Calgary in the 80's.  I don't have data for Saskatoon, but it is possible wages dropped in Saskatoon at the same time. 

The gains in median family income that are lost will be dependant on how big  and the duration of the housing bust really becomes.