Canada’s independent housing market, captured in one chart

Canada’s rise in house prices has given rise to a new economic term to describe the market: ‘shelter inflation’

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Canada’s housing market is independent of reality, and low interest rates – even the global pandemic – are only partly to blame, says a North American economist who expects an account soon.


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It is no surprise to anyone, especially home buyers, that home prices in Canada have been steadily rising. Over the past two decades, house prices have risen by 375 percent nationwide and in hot markets like Toronto and Vancouver, as much as 450 to 490 percent, respectively.

Today, the average price of a house is $ 686,650, according to the Canadian Real Estate Association. In Ontario it jumps to $ 887,290, and in British Columbia it is $ 913,471.

Even smaller markets, like Tillsonburg, Ont. or Bancroft, Ont., are experiencing sharp rises in property prices as the pandemic drove remote workers and families out of cities into less crowded communities and accelerated home purchases.


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Canada’s rate of increase in house prices is far more than any other developed market in the world and has given rise to a new economic term to describe the market: ‘shelter inflation’.

But what alarms David Doyle, head of North American Strategy & Economics at Macquarie Group, a global financial services organization, is how out of sync Canadian house prices are with other important factors – such as income and people’s ability to pay for their high prices. housing in the coming years.

“Prices are completely separate from the basics,” Doyle says.

While much of the blame for Canada’s housing frenzy is placed on low interest rates, with cheap borrowing costs easing the burden of large mortgage repayments, Doyle has another explanation.


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He says there is a psychology at stake in Canada that house prices can only go in one direction: up.

“This is an idea that lives by itself,” Doyle says.

This is best illustrated when comparing real house prices and real income in Canada with the United States, as Doyle’s team of researchers did recently.

As Doyle explains, and as the charts above illustrate, incomes and house prices in Canada and the United States have maintained a roughly similar pace over the decades since the 1970s and remained locked in until the late 2000s.

Then, in Canada, the red line representing house prices literally disappears from the charts and deviates from the income and also from the American picture.

“What’s different is the house prices,” Doyle says.


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The two markets diverge after 2008-09, when the US suffered from the severe stock market and the housing crash was due to the subprime mortgage market. In a nutshell, too many Americans had taken out loans and mortgages for housing they could not afford.

For a variety of reasons, such as stricter mortgage rules, Canada’s real estate market was largely immune to that crash and did not suffer from the same correction.

In the United States, they do not see housing as a safe asset

David Doyle, economist

But as U.S. housing recovers, Canadians may soon end up paying the price.

As Doyle explains, the 2008/09 crash had a major impact on American investor psychology. “In the United States, they do not see housing as a safe asset.

“In Canada, what happened in 2008/09 reinforced the idea that housing never fails, that a house can only go up.”


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Although low interest rates have helped boost the housing frenzy in Canada, they are only part of the problem, Doyle says, pointing out that both Canada and the United States have operated in similar low interest rate environments. Higher property prices have meant that a household’s opportunity to afford a home purchase is stretched, even though mortgage repayments are a minor burden.

His concern is what will happen in 2023 and then when interest rates start to rise. People who bought homes at market peaks in 2019-2020 will then face renewal of higher-rate mortgages.

“In 2023, things are starting to get uncertain. I’m more worried after 2024, at that point, the Bank of Canada will raise interest rates and housing will be affected.”


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The solutions, he says, are complex and involve a wholesale reconsideration of the housing market in Canada.

Currently, more than 10 percent of Canada’s GDP comes from residential real estate activity: renovations, ownership transfer costs, and property commissions.

“It’s way too big and unsustainable. It’s distorting the economy,” Doyle says.

Canada’s housing investment as a share of the economy is higher than any other OECD nation, with the exception of New Zealand, Macquarie’s research shows. And it exceeds the amount of business investment in Canada.

What this means is that Canada as a nation spends more on where we live than on what we make or produce, an equation that will ultimately affect our ability to pay for where we live.

“This is a big, big problem,” Doyle says.



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