# Canadian property bubble

The Canadian property bubble refers to a significant rise in Canadian real estate prices from 2002 to present (with short periods of falling prices in 2008, 2017, and 2022). 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 10 riskiest cities in the world.
Royal Bank of Canada analysis showed that by 2022, Canadian housing had become the least affordable that it had ever been. That record was broken a year later, with 63.8% of the median household income required to cover ownership costs of aggregate housing types. Housing is considered affordable at less than 30% of before tax household income.
In 2023 Canada’s nonfinancial debt exceeded 300% of GDP and household debt surpassed 100% of GDP, both higher than the levels seen in the United States before the 2008 global financial crisis. Canada's housing investment as a percentage of GDP ratio peaked at 8.9% in 2022, whereas the US, at the peak of their housing bubble, only reached 7% in 2006. Broadbent Institute analysis concluded that Canada's "housing system is unsustainably financializing and concentrating control over basic human rights."

## 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. Average house prices declined by over 27% in Greater Toronto from 1989 to 1996. 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.

### Attempts to slow growth 2016 - 2017

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 response to these trends, 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 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.

### 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.
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 GDP
* 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 around 20% of all home purchases in Canada between 2018 and 2019. 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." 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%. 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. Condominiums accounted for the bulk of new housing in BC (54%) and Ontario (59%), and investors constituted an increasing share of the buyers of these units (41% in Ontario).
On Feb 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 to cool the market. 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.
In early 2021, Maclean's reported that zoom towns, popular with remote workers, were experiencing population growth at the expense of major urban centres. Notably:
   From July 1, 2019 to July 1, 2020, Toronto and Montreal posted record population losses, while Halifax grew the second-fastest of any major urban area, and Moncton also grew faster than average. Housing prices have soared as people across Canada buy property in the Maritimes sight unseen through virtual tours, with Fredericton’s U-Haul dealer struggling to keep up with all the people renting moving trucks in Ontario and Quebec and trying to drop them off at its lot.
During the COVID-19 pandemic in Canada, statistics showed that the housing sector grew, but much of the rest of the Canadian economy did not. Jeremy Kronick, associate director of research at the C.D. Howe Institute specified that "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 peak

On 26 January 2022, the Bank of Canada announced their expectation that "interest rates will need to increase." Once average home prices peaked in February 2022, they began to decline rapidly. The Bank of Canada began hiking interest rates on March 2 2022.
Later that same month, Oxford Economics forecasted a 24% drop in Canadian home prices by mid-2024, unless higher interest rates and anti-speculation policies fail. Were home prices to rise further (in this latter scenario), a crash of 40% and a financial crisis was to be expected.
The average and median prices for detached houses had declined by almost $400,000 in the Greater Toronto Area by September 2022. The Teranet-National Bank House Price Index dropped 10% by mid-January 2023, the “largest contraction in the index ever recorded” since it began in 1999. Contractions in CREA's MLS house price index from the peak to January 2023 met the criterion for a crash (> 20% drop in value) in London (-26%), Cambridge (-25%), Kitchener-Waterloo (-25%), Brantford (-24%), Hamilton (-23%), the Niagara region (-20%) and Barrie (-20%).
The Bank of Canada hiked the overnight interest rate 10 times between March 2022 and July 2023 bringing the target interest rate from 0.25% to 5% to combat inflation.

### 2023 bounce

The IMF concluded that "Canada runs the highest risk of mortgage defaults among advanced economies" in their June 2023 report comparing 38 countries. Canada's residential housing stock was valued at 3.1 times GDP in 2023 after peaking in 2022.
By October 2023, housing sales had slowed (-17% compared to pre-pandemic) while prices stabilized. Regional disparities were very noticeable with month over month Home Price Index (HPI) up in more affordable markets such as Calgary (+9.4%) and Moncton (+12%), to the highest or near-highest levels on record while prices in larger, more expensive markets such as Toronto (-1.7%) and Vancouver (-0.6%) remained flat. The impact at the national level was a wash, with HPI increasing by 1.1% year over year.

### 2024 sales drop, inventory increase and productivity issues

Price changes were not significant compared to changes in number of sales and inventory, particularly in condo markets. The average selling price of a home in Canada decreased by 3.9% year-over-year to $724,800 in July 2024. Sales of new condo units in the first half of the year fell 57% from the previous year, marking the slowest pace in 27 years in Toronto and all housing inventory in Vancouver increased by 39% compared to the year prior, rising above the 10-year average.
Concerns regarding productivity were a focus this year, with at least one chief economist attributing Canada's poor labour productivity (as well as Australia's) to the countries' heavy dependence on housing and immigration to drive growth, as opposed to the US. Canada's Real GDP per capita had barely experienced any growth in a decade, while labour productivity had not grown since 2018. "Construction has generated no productivity growth over the past forty years!” lamented chief economists at TD Bank, while construction grew to surpass manufacturing in labour hours, increasing its negative impact on the whole. The OECD forecasted Canada’s per-capita real GDP growth to be dead last among advanced economies for the next 40 years.

## Investor/speculator impact

Investor activity (measured as the percentage of non-owner-occupied homes) increased both housing price appreciation and price collapse during the 2007–2008 financial crisis. Investor activity peaked in 2005, with over 29% of new mortgages in Las Vegas taken out for investment properties. At this time, 15% of mortgages across the US were for non-owner-occupied homes. In 2020, in Toronto, 21% of all housing, and 56% of condos were investor owned. In Vancouver, nearly 48% of condos, and 33% of all housing was owned by investors. Across Canada, 1 in 5 homes were investment properties. Investors were found to be increasingly crowding out prospective first-time buyers in a 2024 analysis.
Housing investors are most often individual residents of Canada but many properties are held opaquely through corporations. It is unknown how many properties are owned by institutional investors, such as the Ontario Teachers' Pension Plan, Blackstone Inc., and, Core Development Group. Although less than four percent of investors are non-residents of Canada, the federal government placed a temporary ban on foreign buyers from Jan 1, 2023 until Jan 1, 2027. In B.C. and Ontario, only around 20% of condos are owned by "in-province" investors. There is a debate on which group of investors, foreign or domestic, play a bigger role in driving rising prices.
Foreign buyers may have a disproportionate impact on the housing market, as Reports by CMHC and IMF concluded that rising prices in Toronto and Vancouver cannot be entirely explained by credit conditions (interest rates and mortgage regulations are similar from coast to coast), income growth, or demographic factors. This leaves either a chronic lack of supply, or, non-resident buying and financial speculation as primary variables to consider.
Ways in which foreign buyers may have disproportionately impacted house prices:
Setting prices at high levels. In Vancouver, the single-detached homes owned by non-residents were assessed at $707,000 more than local owners on average. In Toronto, the difference is about $100,000. Non-resident buyers may be pulling up the price on all ‘comparable’ properties. By pulling up prices in one segment of the market, households who are priced out of luxury units may start to bid up prices elsewhere, generating a ripple effect ‘downmarket’.
Foreign buyers don’t include:
* Non-resident students attending Canadian universities
* New immigrants who arrive with substantial amounts of wealth earned abroad
* Residents who live in a ‘satellite’ family where the primary breadwinner lives abroad
* Foreign money that is laundered in local real estate through shell companies.

## Regional differences

Some commentators have stated that Canada as whole did not have a real estate bubble; only Toronto and Vancouver really have had one. As is typical in all countries, prices vary widely between urban and rural areas, between regions, and between cities within a region. However, as Canadian regions have very different economic bases, the impact of the price increases of the twenty-first century have been almost diametrically opposed in two types of cities: metropolitan regions based on financial services, manufacturing, international trade, services and tourism (the Golden Horseshoe, the Lower Mainland, Southwestern Ontario) have tended to move up most strongly when cities based around resource extraction (e.g. the Calgary-Edmonton Corridor) are flat or declining. Conversely, resource-dependent cities have had periods of stronger growth than services-focused cities during periods of resource price spikes.
Economic growth, migration rates, and therefore housing prices in Alberta, Saskatchewan, and Newfoundland and Labrador are tied to oil and gas prices, and therefore experienced their strongest growth during and immediately following the oil price spikes of 2003–2008 and 2009–2014. Growth slowed or reversed during and after the oil price drops of 2008–2009 and 2014–2016. The impact of the short-lived 2020 price crash was limited: average housing prices in Alberta overall did not drop year-to-year from 2019 to 2020 as many had predicted, but did drop slightly in Calgary.
Vancouver has experienced more direct foreign investment than other Canadian cities since the 1990s, as well as strong immigration and has therefore increased faster than the rest of the country. High prices in Vancouver have pushed middle class buyers out to other parts of British Columbia.
Much like in British Columbia, in Ontario the fastest rising prices have been in the main urban centre, Toronto, which, like Vancouver is a major hub for foreign investment and immigration. Rising prices elsewhere in Ontario may be a ripple effect radiating out from Toronto.
Until 2020, Quebec and the Maritime provinces had not seen as dramatic growth in prices as the rest of the country, as their economic growth and population growth is generally much slower.
Immigration to Canada since the mid 2010s has been concentrated largely in Ontario and British Columbia, which has forced prices in those provinces to rise much faster than in other provinces.
In 2021, $500,000 sufficed to purchase a five-bedroom, four-bathroom detached home on Killarney Road, New Brunswick (a commuter town near the provincial capital, Fredericton), but only a 495-square-foot one-bedroom condo in Vancouver's Kitsilano neighbourhood.
The strongest growth during 2020 was in middle-sized Ontario cities, notably: Windsor (+21%), the Muskokas (+20.3%), and Ottawa (+19.4%). The only declines in a major market were seen in former foreign investment hubs West Vancouver (–1%), and North Vancouver (–0.02%), while nearly-flat prices were seen in oil-exposed markets such as Calgary (+0.02%), Edmonton (+1%) and Regina (+2%).

## Money laundering

A suspected contributor to Canada's real estate price growth is "The Vancouver Model" of money laundering. Stephen Schneider, criminology professor at St. Mary's University in Halifax stated "I've never seen such a big operation … that is so geographically confined." in his contribution to the Cullen Commission, which is an ongoing public inquiry into money laundering in British Columbia, led by B.C. Supreme Court Justice Austin Cullen. The Cullen Commission estimated that in 2019 alone, $5.3 Billion of illicit funds was laundered through the Vancouver real estate market, which increased housing prices by 5%.
"The Vancouver Model" is a way for Chinese organized crime to launder revenue generated primarily by fentanyl sales through casinos.
In 2016, Transparency International Canada found that 33% of the most valuable residential real estate in Vancouver was owned by shell companies and at least 11% have a nominee listed on their title.
Transparency International Canada also studied corporate ownership of Greater Toronto residential real estate and found that between 2008 and 2018, $20 billion of purchases were made using over 50,000 corporations with no checks and balances to determine the beneficial owners or source of funds. Roughly $9.8 Billion (49%) of those purchases were "all cash buys," i.e. no mortgage debt was used for the purchases. In addition, roughly $10 Billion (50%) of the same corporate purchases used mortgages from private unregulated lenders. In contrast, only 11% of households purchase real estate with "all cash" and 3% use private lenders.
Transparency International Canada has highlighted that part of the problem is lack of data. They reported that availability of real estate ownership data varies by province and was hidden behind a paywall.
In 2018, the BC government convened an Expert Panel on Money Laundering in B.C. Real Estate. The resulting report recommended the disclosure of beneficial ownership, among other steps the government could take to address money laundering in the province. In May 2019, the BC government passed an Act which led to the launching of the Land Owner Transparency Registry of BC on November 30, 2020. The registry opened to public search on April 30, 2021.

## Supply

Demand-supply imbalance in the housing market is an oft-cited cause for increased housing prices, with proposed solutions most often focused on increasing supply. However, the proportion of investors purchasing homes began outpacing first-time and repeat homebuyers in 2021. Investors acquire, specifically: recently-built housing, and the most affordable housing that is for sale (i.e. condo apartments). This raises serious doubts about the extent to which increasing market-rate housing supply can expand “attainable” housing for non-investors.
In addition, multiple studies suggest that Canadian housing supply has been sufficient for decades. A study by the International Monetary Fund (IMF) in 2018 concluded that Canada was the 2nd most responsive to housing demand of 20 advanced economies. Pomeroy found “little evidence of a chronic undersupply” Canada-wide, or in Canada’s eight largest metropolitan areas. BMO Chief Economist Doug Porter summarized "Over the past 45 years or so, the ratio [of housing starts to growth in working age population] has typically been about 0.60 (about one new build for every 1.7 additional adult). In the past year, the ratio has plunged below 0.5..." However, in the past 5 years, the ratio is "even a bit above the long-run norm.” Another 2022 analysis by BMO highlighted that over the past two decades, Canada’s housing stock has grown at a faster rate than new households formed. It concludes that “the country doesn’t have a supply problem so much as an affordability problem due to recurring waves of excess demand pressure.”
Analyses suggesting that housing supply does not keep pace with population growth may be failing to account for household size.
Similarly, when comparing annual Canadian Census population estimates to housing completions from 2001 to 2022, the number of housing completions exceeded household formation in 19 of the 22 years measured (accounting for household size decreasing from 2.6 in 2001 to 2.4 in 2021).
The Fraser Institute emphasized the spike in population growth outpacing housing completions by 2022 in particular. coinciding with a spike in immigration.

## Risks

Canada is a nation heavily dependent on the real estate industry which accounted for roughly 14% of its GDP in 2020 and over 20% in 2023. There is a high risk that if investor sentiment changes, buyer demand may drop significantly, triggering a vicious cycle of prices declines that snowball. Canadians hold increasing mortgage debt (almost $2 trillion in June 2021, $2.16 trillion residential in 2023) while unemployment rose and net employment fell in 2024.
Short-term fixed-rate mortgages are dominant in Canada, typically with the interest rate locked in for five years. This contrasts with the United States, where most homeowners hold long-term fixed-rate mortgage contracts. If the reset rate in five, ten, or fifteen years is higher than in the past, there will be a large risk of default for Canadians with high amounts of debt. A July 2017 report noted that uninsured mortgages represent the greatest risk to the financial industry. A decreasing number of Canadian mortgages are backed by insurance, from over 60% in 2012 to less than 22% in 2022. Drops in home prices could cause homeowners to owe more on their mortgages than the house is currently valued, which is known as negative equity.