The Canadian property bubble refers to the significant rise in Canadian real estate prices between 2002 and 2022, with short periods of falling prices in 2008 and 2018.
Summary The Dallas Federal Reserve rated Canadian real estate as "exuberant" beginning in 2003. From 2003 to 2018, Canada saw an increase in home and property prices of up to 337% in some cities. In 2016, the OECD warned that Canada's financial stability was at risk due to elevated housing prices, investment and household debt. By 2018, home-owning costs were above 1990 levels when Canada saw its last housing bubble burst. Bloomberg Economics ranked Canada as the second largest housing bubble across the OECD in 2019 and 2021. Toronto scored the highest in the world in Swiss bank UBS' real estate bubble index in 2022, with Vancouver also scoring among the ten riskiest cities in the world while the IMF warned that Canada faces the highest risk of mortgage defaults among advanced economies. In 2019, Parliament passed the National Housing Strategy Act, which recognizes housing as a human right, but McGill University professor Jayne Malenfant noted a lack of political will as, ultimately, "viewing housing as an investment is incompatible with the right to housing". +Comparison of US 2006 housing bubble vs Canada 2022IndicatorUSCanadaAnnual housing price increase yoy13.43% 2004–200526.6% 2020–2021Maximum regional price increase yoyLas Vegas resale homes 52.4% 2003–2004London townhomes 51.5% 2021–2022Peak investor activity nation-wide15.31% non-occupied home purchases20.58% multiple mortgage holders (does not include mortgages originating outside of Canada) Peak investor activity regional highApproximately 30% of Las Vegas sales in 200541.9% Ontario condominiums (city breakdown unavailable) 31.5% Nova Scotia for all residentialReal national home price increase, 10 year86% 1996–2006107% 2000–2010 (209% 20 year 2002–2022)Peak housing investment as a percentage of national GDP7% in 20068.9% in 2022 National affordability : house price to income ratio8.82 March 20069.72 February 2022 *Please note that data may not be comparable (e.g. non-occupied homes in US vs multiple mortgage holders in Canada).
History Background factors Canada's last housing busts happened during the early 1990s recession, when Canada was facing low commodity prices, a large national debt and deficit that was weakening the value of the Canadian dollar, the possibility of Quebec independence, and a recession in Canada's main trading partner, the United States.
Between 1986 and 1989, housing costs in Toronto increased by 150%, the highest four-year price escalation to date. This spike corresponded with the introduction of the Canadian Immigrant Investor Program in 1986, a type of "golden visa" that allowed high-wealth individuals and their families a pathway to permanent residency; as well as the plummeting of five-year mortgage rates from over 21% in 1981 to 10.2% in 1987. Two years after 5-year mortgage rates began increasing (from 11.25% eventually to over 14%), average house prices began to decline by over 27% in Greater Toronto (1989 to 1996) during the early 1990s recession. The Canadian Immigrant Investor Program ended in 2014, while the Quebec Investor program continued on until it was frozen in 2019.
Vancouver’s first housing bubble burst in 1981, the second declined gradually in 1994. Otherwise, Canadian housing prices from 1980 to 2001 stayed within a steady and narrow range of 3 to 4 times provincial annual median income,Based on the median after-tax income of total under 65 economic families. Statistics Canada Custom Tabulation: Survey of Income and Labour Dynamics as per MacDonald, Canada's Housing Bubble, Aug 2010 with little effect anywhere outside of these two cities.
The 2000s commodities boom (caused by rising demand from emerging-market economies such as China) boosted economic activity, particularly business investment, which generated job growth in Canada. During this time, significant rural-to-urban migration and immigration to Canada likely contributed to the pressure on house prices. By 2010, Canada began experiencing, for the first time since 1980, a synchronized housing bubble across the six largest residential real estate markets in Canada, which represent approximately 40% of all real estate sales in Canada.Comparing CREA number of sales for residential real estate in greater Vancouver (GVA), Calgary, Edmonton, greater Toronto (GTA), Ottawa and Montreal to the number of Canadian sales for residential real estate in 2010 as reported in MacDonald "Canada's Housing Bubble" Aug 2010 In 2012, the IMF warned about Canadian housing market and debt levels in their biannual report.
Attempts to slow price growth 2016–2017
In 2015, the IMF further detailed their concern as house prices being 9-20% overvalued, while the Bank of Canada estimated 10-30% overvaluation. In December 2015, the benchmark price of housing in Metro Vancouver increased by 18.9% year over year. In March 2017, the cost of owning a single-family house in the Greater Toronto Area had grown 33% year over year. In May 2017, the IMF again expressed concern to Canada’s Standing Senate committee on National Finance in an in-person meeting. Specifically related to housing exposure, household debt, and rapid acceleration of home prices. This was shortly before Moody’s downgraded the credit ratings of the Big Six Canadian banks, citing increased private sector debt and elevated house prices. Multiple levels of government attempted to slow the growth of the real estate market and gradually bring down prices, to aid first-time home buyers in a way that would cause the bubble to shrink slowly rather than burst in this period of time. In October 2016, Finance Canada introduced a stress test for insured mortgages, to ensure that buyers would continue to afford their mortgage in the event that interest rates rose. British Columbia instituted a 15% foreign buyer's tax, termed the National resident Speculation tax. In 2017, Ontario followed suit with a 15% property transfer tax on foreign buyers in the Greater Golden Horseshoe region. and the city of Vancouver introduced a vacant property tax. In addition, the province of Ontario's Fair Housing Plan set in place stricter rent controls and 16 measures to help combat the growth of the real estate market ."Ontario's Fair Housing Plan." News.ontario.ca, news.ontario.ca/mof/en/2017/04/ontarios-fair-housing-plan.html. These remedies coincided with a slight dip in housing prices in 2017 which some believed was the beginning of a housing crash; however this did not come to pass.
2018 and 2019 signs of risk Despite prices easing, the Canadian Mortgage and Housing Corporation noted that the housing market remained vulnerable and cited overbuilding (high rental vacancy or inventory of unsold new-builds) as an indicator of the country's housing bubble risk."Canada's Housing Market Still 'Highly Vulnerable' despite Easing Prices, CMHC Warns." Financial Post, October 25, 2018, business.financialpost.com/real-estate/prices-easing-but-canadas-housing-market-still-highly-vulnerable-cmhc.
Other signs of financial risk included:
Canadian private sector debt-to-GDP ratio rising to 218% in 2018 The amount of household debt in Canada surpassing national GDPAlini, Erica. "Will It Crash? Here's What to Expect from the Canadian Housing Market in 2019." Global News, Global News, December 2, 2018, globalnews.ca/news/4688308/canada-housing-market-outlook-2019/. In Alberta, despite a recession and high unemployment, real estate prices in Calgary dropping less than 5%.
The OSFI revised and expanded the mortgage stress test in 2018 to uninsured mortgages, although CREA decried this action in 2020 due to its impact on declining sales.
Investors (defined as owners who borrow to buy a secondary property while maintaining a mortgage for a primary property) accounted for ~20% of home purchases between 2018 and 2019, and increased in 2021. StatsCan's Canadian Housing Statistic Program estimated in a 2019 report that one third of the Toronto condo market is owned by people who do not personally live in the units but rent them out or leave them empty.
In their April 2019, the Bank of Canada concluded that Canada's housing market is "currently in uncharted territory" as they monitored the impact of the new mortgage rules. While the report does not use the word "bubble," it instead uses the term "froth," to describe "resales exceeding fundamentals" in Vancouver and Toronto in 2015-2016 and "extrapolative expectations." The IMF was more straightforward, noting that the risk in Canada had grown and was near levels seen during the U.S. financial crisis a decade prior. The Bank for International Settlements found Canada to be the only country in their analysis that presented warning indicators in all four categories of financial stress.
House prices did not drop significantly during this time, but rather stagnated through 2019.
Pandemic 2020 to 2021
The housing market experienced a brief slowdown during the onset of the pandemic, especially for condos in larger cities. In response to the pandemic, the Bank of Canada slashed interest rates three times in one month and reduced the mortgage "stress test" rate, which enabled buyers to qualify for slightly larger mortgages. Prices soon rebounded. By June 2020, detached home prices had increased in 95% of Toronto districts, with double-digit increases in most (55%) of them.
This defied many predictions, including those by the CMHC, which had forecasted prices falling by 9–18% and for house prices and sales to not recover their pre-pandemic levels until 2023 onwards. Instead, by the end of 2021, the Canadian Real Estate Association's House Price Index had risen by 26.6%, the fastest annual pace on record. Incomes did not keep up. Condominiums accounted for the bulk of new housing in BC (54%) and Ontario (59%), where sales rose 71% yoy and investors constituted an increasing share of the buyers of these units (41% in Ontario).
On February 23, 2021, Bank of Canada Governor Tiff Macklem said the Bank was only starting to see "early" signs of "excessive exuberance". In a Q&A, he said the Bank was not considering any additional measures to cool the market, saying: "We need the growth." While other countries were attempting to cool their overheated markets, Canada was not, citing concerns about the economic recovery. The Bank indicated that it would continue to hold firm on low interest rates until likely 2023, resisting calls from investors and economists that higher rates were needed. However, by mid-June, with fiscal spending booming and households flush with cash from stimulus, investors expected the Bank of Canada to begin raising rates in 2022.
Zoom towns, popular with remote workers, were experiencing growth at the expense of major urban centres. Notably:
During the COVID-19 pandemic, while the housing sector grew, much of the rest of the Canadian economy did not. Jeremy Kronick, associate director of research at the C.D. Howe Institute summarized "data from Statistics Canada show that, for the first time on record, investment in the housing market is now greater than 50 per cent of all investment in the Canadian economy".
2022 Price peak On January 26, 2022, the Bank of Canada announced their expectation that "interest rates will need to increase." The Bank of Canada began hiking interest rates on March 2, 2022, which would normally impact prices 12 to 18 months later (i.e. March- September 2023). However, Canada's average home price began to decline rapidly after peaking in February 2022, before interest rate increases, but after the announcement. The Teranet-National Bank House Price Index peaked a few months later, in May 2022, before dropping 10%, the "largest contraction in the index ever recorded" since it began in 1999.