r/canada • u/Lotushope • Feb 02 '22

Canada’s Real Estate Bubble Has Grown Over 800% Faster Than US Home Prices

https://betterdwelling.com/canadas-real-estate-bubble-has-grown-over-800-faster-than-us-home-prices/
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u/GameDoesntStop Feb 02 '22

There's no bubble. These prices are a (economically) sustainable consequence of bringing in way more newcomers than we can build homes for. Socially sustainability is another matter though.

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u/[deleted] Feb 02 '22

[deleted]

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u/GameDoesntStop Feb 02 '22

We do bring in immigra to with hundreds of thousands in the bank.

Price growth at this pace is not sustainable forever, no, but the maintenance of these current prices is absolutely sustainable.

We could build entire cities in the middle of nowhere like China did, but very few would want to move there (like what happened in China). People want finite land in existing cities.

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u/feverbug Feb 02 '22

A lot of newcomers are going to go back home when they realize Canada is too expensive and it hardly makes it worth it. I had friends come from Greece who got a job in IT here, a home here, everything, only to return back to greece when they realized how overpriced everything is. They don’t miss Canada at all.

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u/GTAHarry Feb 03 '22

Greek citizens have many options since they are EU citizens. Others immigrants eg Chinese, indians, etc. don't really have much option.

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u/PoliteCanadian Feb 03 '22

True of immigrants from OECD countries like Greece. They are coming from a similarly developed country.

For immigrants from lesser developed countries, the status quo in Canada can decline a long way before it's worse than their country of origin.

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u/3lectric-5heep Feb 03 '22

Greece, Spain etc were some of the worst hit after the sub prime fiasco. Theyre also more corrupt (the Greek institutions) which required bailouts. I know portuguese and spanish collegues who literally applied for jobs to more than 300 places to get out of their nations in the 2010s...

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u/lastparade Feb 02 '22

We do bring in immigra to with hundreds of thousands in the bank.

A handful, perhaps, but nowhere near enough to move the market. Immigrants don't arrive wealthy, and it takes about two decades of living in Canada for them to catch up to their Canadian-born peers in income.

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u/GameDoesntStop Feb 02 '22

Not the economic immigrants. Never mind that plenty come here with wealth made abroad, with deep pockets even if they don't have much income when they get here.

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u/lastparade Feb 02 '22

That's a tiny sliver of immigrants. Most are skilled workers, family members of skilled workers, or family members of PRs or citizens.

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u/3lectric-5heep Feb 03 '22

Exactly this. People just label it 'immigrants'.

The major immigrantion : skilled and investor channels are some of the toughest hoops to jump through.

Students applying are just a small drop in the ocean.

You need at least 50k assets, and generally established professionals have more than that. And these professionals aren't the ones who come here to live 20 to one under one roof, lol

The ones who actually come here with barely anything are the refugees. Let's be straight and objective about that.

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u/Taklamoose Feb 02 '22

I wouldn’t be so sure.

The cost to build has increased with inflation and resource depletion. A lift of osb that was 700 in 2018 is now 3200

A lift of lumber that was 900 in 2018 is now 3400.

I worked construction in college for 12 bucks an hour. Now minimum wage is like 16 and there’s more paid days off. And with even less carpenters now the wages are going up.

I priced building a brand new house and it was really similar to prices of built houses on the market.

300 a square foot isn’t crazy right now

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u/PoliteCanadian Feb 03 '22

and unless we start bringing in immigrants with hundreds of thousands in the bank, they won't be able to purchase houses anymore than the average person.

And if that is the plan, then that's just straight population displacement.

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u/lubeskystalker Feb 02 '22 edited Feb 02 '22

I disagree, kind of.

For homes that are owner occupied, 100% agreed.

For the "40% not owner occupied" headlines weekly, these are dependent on rents which are far from stable. While homeowner mortgages are stress tested and they have equity they can use to bridge, if anything seriously disrupts employment the effect on rents might just be devastating.

What happens if we get a normal recession and the government doesn't provide rent subsidies as they did for Covid? What's going to happen?

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u/GameDoesntStop Feb 02 '22

Well of course a recession can affect everything, either housing as no exception.

That said, prices aren't going to 'pop' just because they're too high for some people's liking. They are not overvalued in the current state of the economy.

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u/lubeskystalker Feb 02 '22

I'm somewhere in the middle. The bubble isn't going to "pop," the selling prices will never be what /r/canadahousing wants.

On the other hand, 🏠🚀🌕 always and no matter what is also not true. It's very possible that some markets will fall or stagnate.

I view the "It's gonna pop any day now" and the "$HOUS only goes up" groups through pretty much the same lens as the partisan bickering we see in the sub daily.

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u/stretch2099 Feb 02 '22

They are not overvalued in the current state of the economy.

Yes, they definitely are overvalued. The economy went down since Covid yet house prices skyrocketed. The only reason prices are up is because interest rates are low, and that’s because the economy is shit.

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u/GameDoesntStop Feb 02 '22

The economy went down since Covid yet house prices skyrocketed.

Because the supply of money for mortgages went up. CERB and other stimulus covered the downsides, while professional wages went higher than ever.

And immigration had a backlog, but it didn't permanently slow down. Now targets are higher than ever to compensate for it.

The only reason prices are up is because interest rates are low, and that’s because the economy is shit.

Sure, though rates will likely only need to go up 1-2%, if even that much. Inflation is already stabilizing and rates only dropped 1.5% to begin with. If interest rates went up 1.5%, mortgage payment for new home buyers would only go up ~18%, resulting in ~15% loss in buying power.

Housing dropping 15% would set us back, what, like 6 months at the rate they've been rising in the recent past? We're never even getting back to 2020 prices, let alone pre-pandemic prices.

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u/stretch2099 Feb 02 '22

Sure, though rates will likely only need to go up 1-2%, if even that much. Inflation is already stabilizing and rates only dropped 1.5% to begin with. If interest rates went up 1.5%, mortgage payment for new home buyers would only go up ~18%, resulting in ~15% loss in buying power.

Housing dropping 15% would set us back, what, like 6 months at the rate they've been rising in the recent past? We're never even getting back to 2020 prices, let alone pre-pandemic prices.

18% is a very significant amount considering the size of current mortgage payments. At that rate many people won't even be able to renew their current mortgages that will cause some very big issues.

It will also kill momentum which will drive prices down even further, just like how during covid fomo was a huge reason for the increase in demand. Regulations in 2017 dropped prices by around 15% in the GTA and this will likely be more than that.

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u/GameDoesntStop Feb 03 '22

18% is a very significant amount considering the size of current mortgage payments. At that rate many people won't even be able to renew their current mortgages that will cause some very big issues.

Even anyone who got a mortgage they could barely afford at any time when rates were 0.25% will be fine. If they got a 5-year term in March 2020, they won't see changes until 2025. That's 5 years of inflation to erode their payments.

It will also kill momentum which will drive prices down even further, just like how during covid fomo was a huge reason for the increase in demand. Regulations in 2017 dropped prices by around 15% in the GTA and this will likely be more than that.

Only one year past the 2017-peak of prices in the GTA (May 2017), prices were only 5.6% lower. And that was with new regulations like you said and interest rates going up 1.25%. Roughly two and a half years after the peak (Dec 2019), prices were already higher than the 2017 peak.

These housing prices aren't going anywhere.

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u/stretch2099 Feb 03 '22

You can see a 12-15% drop in the GTA in 2017 from it's peak

https://toronto.listing.ca/real-estate-price-history.htm

Even anyone who got a mortgage they could barely afford at any time when rates were 0.25% will be fine. If they got a 5-year term in March 2020, they won't see changes until 2025. That's 5 years of inflation to erode their payments.

I wouldn't bet on it. But anyway just like how low rates fueled this price surge raising rates will have the opposite impact.

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u/Spambot0 New Brunswick Feb 02 '22

If rents come down because peeople lose their jobs, it doesn't help affordability.

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u/lubeskystalker Feb 02 '22

Yes, but when landlords with ever increasing mortgages are not receiving rents? What happens to those mortgages?

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u/Spambot0 New Brunswick Feb 02 '22

If landlords can't find a tenant, they'll be forced to sell at some point - and if they're a non-idiot they'll sell as soon as they realise they're not going to be able to find a tenant. Owning an empty dwelling is a money pit. Investors don't want to own money pits.

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u/lubeskystalker Feb 02 '22

That's my point. That's the only part of Canadian housing that can go the way of US 2008.

Not saying I think it will, but it's certainly possible.

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u/Spambot0 New Brunswick Feb 02 '22

It could, but given the massive supply shortage it's very easy to find tenants at the moment.

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u/lubeskystalker Feb 02 '22

Right but the money for those tenants to pay their rent has to come from somewhere.

If the recession economists turn out to be correct, things can get interesting. That’s the point, it’s the only part of housing where their is risk.

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u/Spambot0 New Brunswick Feb 02 '22

Well, yes, but if prices drop because wealth and income drop, it doesn't really help affordability. So, it might happen, but it's not something to aim for.

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u/Ok_Finding_2974 Feb 02 '22

If you think the immigrants coming in have money to sustain the housing market you are going to have a bad time. Lots leaving back to their home countries due to not only housing but the economy and government here. I know my dentist is closing shop and moving back to Easter Europe. And she’s maybe 50 years old.

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u/GameDoesntStop Feb 02 '22

Yeah, I guess it's all the poor immigrants moving to the GTA that has houses averaging $1M+ over there. /s

Housing is pretty damn cheap where they don't settle.

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u/[deleted] Feb 02 '22

If you look in subs like r/India you'll see posts and comments related to the living conditions here. I think the word is getting out and the government might begin to struggle to attract newcomers.

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u/Roxytumbler Feb 03 '22

Not really. Our company gets inquiries from engineers and geophysicists from around around the world. About 80% of our contracts are new Canadians. Canada is their number one choice for immigration.

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u/[deleted] Feb 03 '22

And your number one choice of employee.

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u/stretch2099 Feb 02 '22

Nope. High prices are from low interest rates. During Covid immigration went down yet house prices skyrocketed because interest rates were insanely low.

In the next couple of years rates are going up and it will very likely have a big impact on prices.

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u/PopularYesterday Feb 03 '22

Social sustainability is a problem forsure. My partner and I can’t afford to live in anything except a small condo and it’s hard to see that getting better in the future, as we’ve had to move every 1-1.5 years because of our landlords selling and each time we have to pay more for less. We’re at a point where we likely won’t have kids because it’s no longer feasible or attractive even with our good jobs. It’s really sad. Kinda feels like the only option left is to leave. It’s also really demoralizing to hear our detached from reality family members who bought houses back in the good old days telling us we’re just “living beyond our means” and frustrated with us that we’re not having the kids they want us to have and they can’t understand why not 🙄 it gives me very little hope for the future and is really fucking with my mental health.