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Canadian property bubble
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Canadian property bubble
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.
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".
*Please note that data may not be comparable (e.g. non-occupied homes in US vs multiple mortgage holders in Canada).
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, 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. In 2012, the IMF warned about Canadian housing market and debt levels in their biannual report.
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 . 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.
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Canadian property bubble
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.
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".
*Please note that data may not be comparable (e.g. non-occupied homes in US vs multiple mortgage holders in Canada).
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, 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. In 2012, the IMF warned about Canadian housing market and debt levels in their biannual report.
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 . 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.