From this article. How overvalued do you think Canadian real estate is? What do you think this means for Canadians who have bought homes or are thinking about buying homes? Is there a real estate bubble going on in Canada that is due to burst in the next 10 or 20 years?
From the article -
Another quote (from a real estate company, of course):
I can easily see that we are indeed having a real estate bubble in Canada. Calgary is another example of it - we’re thinking about selling our house and buying in a different part of the city, and we’re finding that the prices are so high that even with equity from the sale of our house, we are not able to afford a house in about 90% of the city. People trying to buy their first house here would find it impossible, I believe.
From everything I’ve read (not your articles, business section of the Ottawa Citizen mostly) there is indeed no bubble except potentially in specific markets (like Vancouver and yeah Calgary). The “bubble” is going to burst in 20 years, maybe? Seems to me that’s a lot of time for a reasonably paced price correction to happen if it’s needed.
Given the explosive rise in prices in some areas it is impossible to explain why they AREN’T overvalued. Real estate does not actually rise 60% in value in four years (the actual increase around here.) That is a bubble.
Do you have a cite for that 60% increase? My computer is acting up, but the stuff I can find shows an under 5% increase in residential prices(scroll down to charts) in Burlington-Hamilton last year. The condo prices look in line with what you suggest with a 13% increase over the past year.
Well I live in Kamloops BC. Back in 2002 I bought a 1,400 sq ft half-duplex for $91,000. I sold it in 2009 for $257,000.
Sure I did some upgrades (maybe $10-15k), but I couldn’t believe the increase in such a short amount of time.
It has slowed down, the 1,800 sq ft detached house I live in now that I bought in 2009 for $327,000 is probably worth about $340,000 (I added a 3rd bedroom).
I know my working wage certainly didn’t increase by a factor of 3 (or close to it) in those short 7 years. I’m glad I bought my half-duplex when I did, otherwise my wife and I could never afford what we have now.
I feel really sorry for first time home buyers these days…
In 2002, we bought an 1,100 square foot condo in NW Calgary for $172,000. We sold in 2005 for $250,000 with minimal upgrades and a bidding war. We bought an ‘estate house’ with 2,500 sq. feet in a bedroom neighbourhood outside of Calgary with the profits for $450,000. We sold a year and a half later (only upgrade was a deck and sod) for $550,000.
We’re now inner city NW and have an older bungalow in a mature neighbourhood that we’re slowly renovating. Renovated homes in this area go for $600K+. It’s nuts. Glad we got in when we did.
I agree there’s been a crazy rise in home prices in some areas of the country, but does that count as a “Canadian” housing bubble? Would a collapse of prices in Calgary and Vancouver affect the country as a whole? Would it affect national banks overmuch?
I agree that housing prices have skyrocketed but I don’t think there’s a bubble to burst here in Ottawa since the market is quite stable.
I do believe that prices will reach a ceiling threshold of how much people will pay.
My wife bought our first house for $145K in 1998, we sold it in 2007 for almost $300K the bought another place for $380K, it has just been appraised at $625-650K.
I ran into an old childhood neighbour who told me he bought their house for $14K in 1973 on a 10 year mortgage. He sold it a couple of years ago for $280K but could have easily gotten $350K+ today.
Inflation is a funny thing, these days I could write a cheque for $14K.
If Canada gets hit by a big recession (after missing most of the recent one), certainly house prices will go down. I’m not sure that makes the current situation a “bubble”, though.
All I know is that whenever I watch one of those Canadian real estate shows (e.g. Property Brothers, Income Property, etc.), I’m shocked at how high the prices are north of the border. I’m talking a 1500 sq ft bungalow for $650k!
I live in Waterloo and rent a unit in a condo complex. I know what I could buy my unit for since I looked at similar units selling over the last two years, plus I know what the condo fees are. And obviously I know what it costs to rent my unit.
The only way I can see purchasing my unit would make financial sense was if I assume massive (10%+/year) appreciation for at least 5-7 years. And hope that the two special assessments in the last year aren’t repeated. Real estate that I want to live in, in Waterloo is way overpriced compared to rent. I have zero plans to buy in the foreseeable future.
I don’t think it’s true for all of Canada. My aunt has been trying to sell her house in Montreal for more than a year and she tells me that prices there are going down steadily. (She blames the separatist government.)
I sell commercial real estate in the US so I am not an expert in Canadian residential pricing. Having said that what you find in many areas is that people flock to economically surging areas and that drags the price of housing stock up much faster than inflation. Even with all the negative hits over the past several years to US real estate prices some areas have rebounded back to 2007 levels. The nicer areas of Washington DC, Northern Virginia and NYC are examples of these scenarios.
There is a limited supply of existing housing stock in many areas as new residential building has been stalled for some time. If everybody wants to be where the economic action is in economically dynamic areas supply and demand will make prices accelerate. As long as investors who supply the money to lenders have confidence in the ability of the buyers to repay prices will continue to rise.
What’s different from years past in the US is that there is no longer the assurance that housing prices will always rise and both US buyers and lenders are more cautious than their pre-2007 counterparts. If Canada residential real estate did not get hit with the body blow that the US did it’s possible this deep cultural shock was never experienced.
It would be interesting to know the increase in Canadian salaries over the past several years.
I don’t think we did. We did experience a slowdown, but the wheels didn’t fall right off here. Of course, our mortgage system has never had all the regulations removed, either, and we have even more regulations now than before 2008, so theoretically, people are only allowed to finance houses that they can actually afford. Heaven forbid someone should lose a job when it takes two fulltime, high salaries to afford a house, though.
They have not kept up with cost of living, as far as I know.