Canada Housing Market Report 2021

Are you confused about the current state of Canada’s housing market? Don’t be!

Perhaps you’re wondering whether it’s the right time or not to invest in the housing market in Canada.

Or you’re contemplating the Canadian housing market and other real estate markets in the world.

It’s easy to get confused amidst the ongoing debate on Canada’s housing market crash.

But has the housing market of Canada crashed? If not, are there indications of a sudden crash?

Here I present an unbiased state of the real estate market in Canada with historical comparison and the latest news.

In the end, I offer practical solutions toward sustaining the stability of the Canadian housing market.

How is the Housing Market in Canada?

The housing market in Canada has been a significant factor in drawing money into the economy and boosting the assets growth of many people.

Historically, the last housing bust Canada experienced happened in the early 1990s, a period that an immense debt and deficit weakened the Canadian dollar.

Furthermore, it was impacted by the impending independence movement in Quebec in addition to the US recession.

Thus from 1989 to 1996, Toronto’s average house price declined consistently as a result of inflation.

However, the personal finances of Canadian middle and upper-classes improved significantly as Quebec separatism declined following the 1995 referendum.

Thus, migration from Canada’s rural areas to urban areas during this period led to the increase of housing prices in most cities.

After Hong Kong was passed over to communists in 1997, many Hongkongers fled to Canada acquired a second nationality.

Subsequently, mainland Chinese seeking foreign investment opportunities emulated this strategy after becoming wealthy during China’s economic boom.

Hence, a steady drop in interest rates led to an inflow of foreign investment and local speculation.

After seeing the escalating real estate prices, consumers believed that real estate was now a stable, long-term investment option.

As a result of believing that homes were in short supply, new consumers entered the Canadian real estate market.

Before the pandemic, many parts of Canada were experiencing higher housing demand than supply due to an increased in-migration rate and a strong labour market.

However, the situation was instead overheated by the current pandemic. The rock-bottom interest rates, dynamic housing needs and increasing savings, stimulated the demand for housing in Canada.

Latest Housing Market News Canada

Current housing price per Canadian province and territority

Source: Wowa.ca

After a record-breaking March, the housing market in Canada cooled down further in June 2021.

Wowa reported that in March 2021, the average home sale price in Canada reached an all-time high of $716,828.

Since then, the price of a house has slipped for three straight months, ending June at $679,051.

Likewise, the number of Canadian home sales in June declined more than 20% from March.

However, Canadian housing prices continue to rise over the past year despite slowing home sales and cooling home prices.

What’s the Main Issue with the Current Housing Market in Canada?

Overheating is the main issue with the current housing market in Canada. By overheating I mean high housing demands with limited available offers

The Canadian housing market is an incredibly strong market with low inventories, rapid house prices, and exceptional demand.

Adding to the problem is that buyers and sellers anticipate consistent price increase.

Thus, Toronto and Vancouver have been the primary cause of concerns regarding the Canadian housing market. However, it’s now a national issue.

As a result of these factors, the rate and size of mortgages have increased significantly.

Consequently, Canada’s household debt load will be made worse by these conditions.

Impact of COVID-19 on the Canada Housing Market

Due to the Canada Housing and Mortgage Corp’s warning that house prices could drop 18% in early 2020, most people expect the pandemic to bring their dream of possessing a home in Canada to reality.

However, a boom emerged without anyone expecting it. Thus, the Canadian Real Estate Association (CREA) reported a 23% increase in the price of homes nationwide.

Most of the recent real-estate bubble can be traced to the phenomenon of ‘pandemic savings.’

Many employers in the restaurant, tourism and travel industries have either closed down completely or significantly reduced the number of workers they hire.

On the other hand, increasing numbers of employees at the top of the ladder now work from home rather than going to the office.

As a result, the savings they accumulate from telecommuting are going toward improving their housing.

In addition to low interest rates, the Canadian housing market is getting even hotter.

Canada Housing Market Crash: Is There Really a Crash?

There have been many worries about the state of Canada’s housing market. This has fueled the debate on the Canadian housing market crash.

But the truth is, there’s no crash in Canada’s current housing market. What is available is high demand and house price increase.

However, neither buyers nor sellers benefit from the current high housing prices. Instead, it adds to the overall debt of everyone.

Why is the Canadian Housing Market Unlikely to Crash?

While the housing market may be in the untold territory due to the global economic downturn, here are the reasons I believe that will make it unlikely to crash:

Growing Demand

The current number of buyers in the Canada housing markets outnumbers properties available for sale in most parts of the country.

With the rules of demand and supply, the market will remain strong and pave way for healthy competition in the long run.

Low Mortgage Rates

In the course of the economy’s recovery, mortgage rates are bound to rise.

Also, more Canadians will find the housing market attractive because most mortgage lenders continue to offer variable rates of less than 2%.

Immigration Increase

According to the Canada Revenue Agency, there will be 401,000 newcomers in 2021, 411,000 in 2022, and 421,000 in 2023.

As buyers or renters, more than 1 million people will be participating in the housing market in the coming years.

Thus, the availability of new families for sellers and the ability for investors to increase rents will help boost the housing market.

Strict Underwriting

A legitimate Canadian lender will not offer a mortgage to a person who cannot afford it.

Prior to approving their mortgages, Canadian lenders examine the finances of prospective homebuyers.

As a result, each applicant’s credit score is assessed, their income is authenticated, and their ability to pay back the loan is determined.

When you combine all the above factors, you will see why it’s difficult to imagine a scenario of a housing market crash in Canada.

Housing Market Predictions 2021 Canada

As the industry breaks records and the pandemic rages, media reports are increasingly pointing to the housing market crash in Canada.

However, most industry players and experts believe headlines are often hysterical; thus, the market collapse is far from certain.

As a matter of fact, Canadian housing prices haven’t declined significantly since the 1990s.

Instead, the experience has been a consistent rough double price increase every decade.

But on average, I can see housing prices rising from 5 to 7% annually for 10 to 15 years ahead.

Why Should Canadian Policymakers Address the Overheating of the Markets?

When an adjustment occurs, overheated markets could destabilize the economy, causing governments to incur high costs.

Because of the widespread expectation of excessively high prices, this threat is particularly dangerous.

Also, the Canadian housing market hasn’t been overheated in this manner since the late 80s. Our economy is not benefiting from the capital utilized to inflate real estate values.

As a result, long-term growth opportunities are undermined by capital misallocations.

Finally, inequality is worsened by sky-high property values. Building more affordable housing is more difficult due to skyrocketing land prices. This leads to greater disparities between the poor and the rich.

Canada Housing Market Crash: The Way Out

Here are practical recommendations toward addressing the current overheated housing market in Canada:

1. Address Pre-Pandemic Issues

Canadian policymakers should focus on addressing pre-pandemic supply issues such as:

  • re-zoning municipalities for more medium-density housing;
  • reducing the regulatory burden associated with new housing approvals;
  • increasing the stock of affordable homes in Canada;
  • providing family-friendly housing in big cities;
  • eliminating or improving existing disincentives to build rental apartments.

2. Adjust the Mortgage-Lending Rules

When the signs of household debt stress are detected, mortgage lending rules may need to be tightened further.

Since the pandemic, the household debt situation has been influenced by historical government assistance and deferrals of debt payments by financial institutions.

Thus, delinquency, bankruptcy trends, as well as debt ratios are apparently benign.

Possible policy adjustment includes a higher minimum down payment, a stricter stress test and a reducing refinancing cap.

3. Review Housing Policy

To ensure housing policy is not destabilizing the market, policymakers should review it holistically.

A change in the economic environment, low interest rates and demographic trends over the long term should be reflected in the housing policy mix.

In light of its broad implications, it would be necessary to examine all related issues thoroughly.

One of the major considerations is to review the capital gains tax exclusions for principal residences.

Since many Canadians have built their wealth on the basis of their home’s total value, any amendments should be carefully considered from both the viewpoint of the financial security of Canadians and the housing market.

4. Increase Housing Supply

Another factor Canadian policymakers need to consider is the increased housing supply. The number of houses available is not keeping pace with the population growth rate.

Immigration is likely to increase with the opening of borders, particularly in places with many jobs, like Toronto.

Currently, the market has already calmed down, and we hope this will persist to the next year and ahead.

As a result, price growth is likely to return to normal in 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 there are more people looking for homes than there are 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 went down 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.

Use a mortgage calculator to determine the exact estimate of your mortgage loan in Canada.

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