Amidst the ongoing chatter about a potential housing market crash in Canada, it’s easy to feel uncertain. Are the ominous predictions true? Could a sudden crash be imminent? This article aims to objectively evaluate the Canadian real estate landscape, complete with historical insights and up-to-the-minute updates.
Whether you’re pondering the opportune moment to dive into the Canadian real estate scene or curious about its global counterparts, clarity is at hand.
By the time you reach the end, you’ll be equipped with a well-rounded perspective on the state of Canada housing market. Plus, you’ll gain actionable insights to help maintain the steadfastness of this vital sector. Let’s dive in!
Canada Housing Market Report
The Canadian housing market drives economic prosperity and bolsters individual asset growth. Taking a historical perspective, the last housing downturn in Canada unfolded during the early 1990s. This period was characterized by substantial debt and deficits, weakening the Canadian dollar. The landscape was further influenced by the Quebec independence movement and the concurrent US recession.
Between 1989 and 1996, Toronto experienced a consistent decline in average house prices, largely attributed to inflation. However, a positive shift in the financial standing of the Canadian middle and upper classes followed the waning of Quebec separatism after the 1995 referendum. This era also witnessed a migration surge from rural to urban areas, subsequently driving up housing prices across most cities.
The transfer of Hong Kong’s sovereignty to the communists in 1997 prompted an influx of Hongkongers seeking refuge in Canada and acquiring a second nationality. Building upon this trend, mainland Chinese individuals, buoyed by China’s economic boom, pursued similar strategies for foreign investments. This, coupled with a continuous decline in interest rates, fostered both foreign investment and local speculation in the housing market.
As real estate prices soared, consumers increasingly viewed real estate as a stable, long-term investment avenue. This perception and belief in a scarcity of homes drew new entrants into the Canadian real estate scene. Prior to the pandemic, numerous regions in Canada witnessed a surge in housing demand, surpassing the available supply due to heightened in-migration rates and a robust labour market.
However, the current pandemic introduced a new dynamic. Rock-bottom interest rates, evolving housing needs, and growing savings collectively fueled an intensified demand for housing across Canada. The landscape shifted from high demand and constrained supply to an overheated market.
Latest Housing Market News Canada
Following an impressive performance in March, the Canadian housing market displayed a noticeable cooldown as of June 2021. Notably, March 2021 saw a historic milestone, with the average home sale price surging to an unprecedented $716,828, according to Wowa’s findings.
However, the subsequent months revealed a change in this trajectory, with housing prices experiencing a decline for three consecutive months, culminating in a June figure of $679,051. This downward trend wasn’t exclusive to prices alone; the number of home sales in Canada also took a notable hit, plummeting by over 20% from the peak witnessed in March.
Despite these shifts, it’s worth noting that Canadian housing prices have managed to maintain an upward trajectory over the past year. This upward price movement has persisted despite the slowdown in home sales and the cooling effect on home prices.
What’s the Central Challenge in Canada’s Current Housing Market?
The prevailing issue in the current Canadian housing market is overheating. This term refers to the imbalance between soaring housing demands and the limited availability of properties for sale.
Canada’s housing market holds robust strength, driven by low inventory, swift house price escalations, and unprecedented demand. Compounding this challenge is the mutual anticipation of a consistent price rise among buyers and sellers. Initially confined to areas like Toronto and Vancouver, these concerns have now spread nationwide.
This confluence of factors has led to a substantial surge in both the frequency and size of mortgages. Unfortunately, these conditions are exacerbating Canada’s overall household debt burden.
The COVID-19 Effect on Canada’s Housing Market
Anticipating an 18% housing price plummet early in 2020, driven by the Canada Housing and Mortgage Corp’s cautionary stance, many envisioned the pandemic as the conduit to making their Canadian homeownership dreams a reality.
However, a twist awaited, defying all expectations. The Canadian Real Estate Association (CREA) unveiled an unforeseen surge, marking a staggering 23% uptick in home prices across the nation.
The recent real estate upswing finds its roots in the intriguing concept of ‘pandemic savings.’ Sectors like hospitality, tourism, and travel saw substantial closures and workforce reductions. In contrast, the corporate echelons witnessed a shift as an increasing number of professionals traded in-office commitments for remote work arrangements.
Consequently, the funds they amassed from their telecommuting endeavours are funnelling into enhancing their residential setups. This phenomenon, coupled with the allure of historically low-interest rates, is fanning the flames of Canada’s already fervent housing market.
Canada Housing Market Crash: Is There Really a Crash?
Amid mounting concerns surrounding Canada’s housing market, a heated debate has taken centre stage: is a crash imminent in the Canadian housing sector?
Yet, let’s set the record straight – as of now, Canada’s housing market has not experienced a crash. Rather, an environment marked by robust demand and escalating house prices prevails.
However, it’s important to note that these soaring housing prices yield no clear advantage for buyers or sellers. Instead, they contribute to an overarching increase in debt for all parties involved.
Why is the Canadian Housing Market Unlikely to Crash?
Amidst the uncharted waters of a global economic downturn, the Canadian housing market stands firm, poised for stability. Here’s a breakdown of the key reasons why a crash seems unlikely:
- Robust Demand: Across vast stretches of Canada, the number of eager buyers far exceeds available properties for sale. This fundamental imbalance between demand and supply safeguards against a sudden market crash, fostering enduring vitality and healthy competition.
- Favorable Mortgage Rates: As the economy steadily recovers, mortgage rates are anticipated to rise. Despite this, the housing market retains its allure for many Canadians. With numerous mortgage lenders continuing to extend variable rates under 2%, the market remains an attractive proposition for potential buyers, further bolstering its resilience.
- An influx of Immigration: Projections from the Canada Revenue Agency indicate a significant influx of newcomers—401,000 in 2021, 411,000 in 2022, 421,000 in 2023, and 431,000 in 2024. This influx translates to over a million individuals participating in the housing market in various capacities, either as buyers or renters. This surge not only brings fresh families into the realm of sellers but also provides investors with increased rental opportunities, thereby stimulating market growth.
- Stringent Underwriting Standards: Canadian mortgage lenders adhere to rigorous practices, ensuring that mortgages are only extended to individuals with the financial capacity to manage them. Prospective homebuyers undergo comprehensive financial assessments, including credit score evaluation, income verification, and loan repayment capability analysis. This meticulous vetting process helps maintain a strong foundation for the housing market.
Why Should Canadian Policymakers Address the Overheating of the Markets?
The significance of Canadian policymakers tackling market overheating cannot be overstated. When an economy experiences an overheated market, the resulting adjustment can have destabilizing effects, leading to substantial financial burdens on governments.
The peril posed by this situation is particularly pronounced due to the pervasive anticipation of exceedingly elevated prices. This looming threat carries significant implications.
Furthermore, it’s crucial to recognize that the current scenario of an overheated Canadian housing market is reminiscent of the late 80s – a period we’d prefer not to emulate. The allocation of capital towards inflating real estate values has regrettably not translated into advantageous economic outcomes.
In fact, this misallocation of capital undermines the potential for long-term economic growth, hampering opportunities for progress and development.
A less discussed yet deeply concerning consequence of skyrocketing property values is the exacerbation of inequality. The astronomical cost of land, driven by the soaring property values, creates a formidable obstacle in the path of constructing more affordable housing. This, in turn, widens the gap between the affluent and the underprivileged.
Canada Housing Market Crash: The Way Out
Amid concerns of a housing market crash in Canada, finding solutions is paramount. Here are pragmatic recommendations to address the pressing issue of an overheated housing market:
1. Tackling Pre-Pandemic Challenges: Canadian policymakers must address supply issues that existed even before the pandemic struck to combat the housing crisis. Key steps include:
- Re-zoning municipalities to promote medium-density housing.
- Easing the regulatory burden tied to new housing approvals.
- Expanding the inventory of affordable homes across the nation.
- Introducing family-friendly housing options in major urban centres.
- Eliminating or enhancing incentives for constructing rental apartments.
2. Refining Mortgage-Lending Regulations: Recognizing signs of household debt stress, further tightening mortgage lending rules might be necessary. The pandemic has led to unique circumstances, with government aid and deferred debt payments impacting household debt dynamics. While delinquency and bankruptcy trends remain relatively benign, prudence dictates potential adjustments, including:
- Implementing a higher minimum down payment requirement.
- Strengthening the stress test for mortgage applicants.
- Reducing the cap on mortgage refinancing.
3. A Comprehensive Housing Policy Review: Ensuring a stable market necessitates a holistic review of housing policy. The shifting economic landscape, prolonged low-interest rates, and evolving demographic patterns must be integrated into the policy framework. This comprehensive assessment should encompass all related aspects, with a notable focus on:
- Reevaluating capital gains tax exclusions for principal residences.
- Balancing financial security for Canadians with the stability of the housing market.
4. Boosting Housing Supply: A critical consideration for Canadian policymakers is augmenting the housing supply to align with population growth. With borders anticipated to reopen, particularly in employment hubs like Toronto, immigration is likely to surge. While the current market has calmed, sustained efforts are essential to ensure long-term stability and balanced growth. The expectation is that price escalation will normalize over the medium term.
FAQs on Housing Market Canada
Why is the Housing Market so High in Canada?
Canada’s housing price is so high because more people are looking for homes than houses available. Furthermore, immigration, low interest rates, and increased foreign funds in Canada contribute to the rise of housing prices in the country.
When Will the Housing Market Crash in Canada?
No one can guarantee when the housing market in Canada will collapse. But from all indications, the Canadian housing market is unlikely to crash soon.
When Was the Last Housing Market Crash in Canada
The last housing market crash was in 2008, which was impacted by the US housing market collapse of 2007. Canada avoided the worst fallout due to the regulations and the policies of former Bank of Canada Governor Mark Carney.
However, our housing market was still impacted, and prices fell in some markets. As a result, the price of new homes reduced from an average of 175,000 to 118,000. At the same time, the prices of existing houses were decreased by 40%.
Thus, house prices nationwide declined by 9.5% in resale transactions, while new home prices decreased by 3.5%. The 2018 housing market crash demonstrates how a setback in the housing market can impact the whole economy.
If you have more questions on the Canadian housing market, let me know in the comment section.
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