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A Look at Canada’s Housing Bubble

Just this morning we talked about a piece in the National Post; and questioned a stat within it stating that sub-prime mortgages make up half of Canada’s mortgage market. Within that same piece though, there were many interesting stats and observations that are also worth taking a closer look at.

Home prices are up almost 100% since the year 2000
We all know that home prices have increased dramatically over the past decade; especially over the past couple of years. But 100%? Really? That means that home prices have doubled, and that just seems like a lot in a mere 10 years.

Yes, it does; and yes, they have. While the Post quoted Euro Pacific Capital in their piece, it seems that might actually be a modest estimate. After doing some digging of our own, we found this chart from The Canadian Real Estate Association, it’s actually even more than that.

Home sales are down in Canada
Those home prices are bound to start leveling off, and many experts have even predicted a drop of 10 – 15 per cent in home value over the next several years. That’s because home sales are dropping in Canada, and the decrease has just begun. While values certainly won’t plummet to the point where they hit rock-bottom, new government regulation has made it much harder for people to finance a home. And that’s evident in the most recent home sales numbers.

According to the Post residential sales were down in Greater Vancouver by 32.5% from where they stood a year ago; and down 8.1% in August from July. In Canada as a whole, August sales were down 5.8% from July of 2012; that’s a decrease of 8.9% when compared with August of 2011.

Housing is more unaffordable now than ever before in Canada’s history
On this one, we’re taking the Post at their word; and it falls in line with what everyone’s been seeing for the past two years. It also makes sense, given the huge rise in home prices over the past decade or so.

This chart provided by the paper shows just how unaffordable housing has become. In the second quarter, housing affordablitiy jumped to 43.4%; while the historical average has been 39.5%. The higher we are on this scale, the less affordable housing is.

Why is Vancouver excluded in areas of this chart? Because it’s the most unaffordable city to live in right now in Canada (who’s shocked?) But while you may not be surprised that Vancouver tops the charts in the category of least affordable, you might be surprised to find out just how unaffordable it is. In fact, Vancouver has a core percentage of 91% unaffordability on the index; and British Columbia hit 69.7% unaffordability this year. That’s higher than the province’s historical average of 50%.

But Vancouver and B.C. certainly aren’t alone. This chart that we obtained from RBC Economics also shows that Ontario is also getting far too high on the affordability index; and home affordability in Toronto in particular became worse for the second straight quarter in a row.

It’s not just homes that are becoming unaffordable
With the rise of home prices pushing people out of the ownership market, more need to turn to renting as an option. Unfortunately, as that demand increases more landlords are going to be able to push the cost of their rents up. Still, a look at the two cities that have the highest home prices in Canada right now (and probably the highest rents, too) you can see that renting is still the most affordable option in both areas.


So, is what’s happening in Canada the same thing that happened in the States before their housing market imploded on itself?

Robert Shiller told CBC News that he thinks so; but he also thinks the results might be drastically different.

“I worry that what is happening in Canada is kind of a slow-motion version of what happened in the U.S.,” he said. However, because we don’t have the subprime problem that was seen in the States, drastically different mortgage lending (and foreclosure) rules, and mortgages backed by CMHC, we’ll fare much better than those in the States did.


  1. bladerogers says:

    I find it difficult to believe that we will “fare much better than those in the States did”. who gets to bail us out of this mess? Taxpayers, that’s who. CMHC is funded by tax dollars and YES, people will be walking away from their homes because they simply cannot afford it any longer. And we the Canadian tax payer get to shoulder the burden?? Forget it, I just hope the US economy amps up in time so I can get my own family out this mess our banks and federal government have created for us, not to mention the large number of folks that bit when that banks said “you can handle that, no problem!” Idiots.

    • Bryan J. says:

      I don’t think that this debate regarding US vs. Canada is going to be settled anytime soon.
      There are a few facts, however, that it seems all parties can and should agree upon:

      1) Canada is NOT the US, and has a different fiscal picture. Further, debt-to-gdp
      comparisons aren’t apples to oranges either given that Canadians don’t have major
      costs like healthcare and education to the same extent that US borrowers have to
      content with.

      2) Secondly, there can be little doubt the market in Canada is frothy and will take
      some time to normalize, likely a trend over the next few years.

      3) CMHC has predominantly been a profitable organization, and many mortgages in
      Canada are also held by conventional lenders, or insured by Genworth which is a
      US public traded company. Ultimately, every citizen is on the hook in aggregate
      for the entire debt of the country and their fellow borrowers given that a collapse
      in the credit market will affect everyone.

      SO your words and efforts might be better spent trying to get your neighbors to stop
      borrowing so much on their credit cards, than bashing the what has historically been
      a conservative financial system here.

      Further, the fact that the government HAS continued to tighten the credit quality
      at major lenders and CMHC, and is trying to do so gradually, is another plus. This
      is, in and of itself, a form of tightening that is targetted at real estate rather
      than the broader economy.

      Its no panacea, but hey, at least its a start.

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