- 22 Nov 2023 20:27
#15296167
Canada appears to be having a housing crisis. This seems eerily reminiscent of the housing crisis the U.S. experienced around 2006 to 2007.
Canadians are hoping home prices come down, but at the same time, if they do, it could trigger a financial disaster in the banks, and pull down the economy, throwing the country into a recession.
Canada's unprecedented housing crisis could be a warning sign for the US
Canada is experiencing an even more severe housing crisis than the US is. Home prices and household debt, due to massive mortgages, are sky-high. Some economists say affordability will worsen, while others say prices are on their way down.
The housing affordability crisis in the US is bad -- but America's neighbors to the north may have it worse.
The average home value in Canada has more than doubled since 2011. The country is also almost certainly heading towards a recession -- if it's not already in one -- and the housing market is partly to blame, economists say.
The drivers? Demand has raced ahead of supply. The country simply isn't building enough housing. City governments, which largely control housing policy, are "biased towards homeowners and not towards renters," Concordia University economist Mosche Lander argued, supporting policies that limit homebuilding and keep home values elevated. Investors pouring money into real estate speculation haven't helped. And record population growth from immigration has only added to demand.
This might sound familiar. The combination of a housing shortage, rising interest rates, and investor speculation have all contributed to a severe housing affordability crisis in the US, as well. "It's similar, but worse" in Canada, Mike Moffat, senior director at the Smart Prosperity Institute at the University of Ottawa.
After more than 20 years of low interest rates, which pushed housing prices up, Canada's central bank recently raised its benchmark interest rate to a 22-year high of 5% in an attempt to control inflation.
Rising mortgage rates are particularly painful in Canada because the standard home mortgage has to be refinanced after five years and fully paid back after 25 years. This is a key difference between the US and Canadian housing markets, since the standard US homeowner gets a 30-year fixed-rate mortgage, protecting them from rate increases for decades.
In part as a result of this, Canadians are deeply in debt. The country has the highest household debt as a share of GDP in the G7 -- and 75% of it is from mortgages.
"We have an imbalance -- we have household debt-to-income ratios that are above what the US was before the global financial crisis," said Tony Stillo, director of Canada economics at Oxford Economics. The result is "unprecedented unaffordability," he added.
Moffat is concerned that as affordability crisis continues and immigration rates remain high, Canadians will blame high prices on immigration and seek to limit migration. Recent polling has found that a growing share of Canadians feel this way, threatening the government's liberal stance on immigration policy. But there are other factors at play besides immigration, and Canada's housing crisis preceded the rise in immigration.
"It's starting to cause backlash here, you're starting to see anti-immigration sentiment," Moffat said.
With mortgage rates so high, home sales have declined recently. In October, home sales fell 5.6%. As a result, home prices overall have flattened somewhat. Stillo believes Canada's housing bubble has been slowly "deflating" for the last 18 months, despite an upswing in prices earlier this year.
The situation is so desperate that many Canadians are celebrating the drop in prices. Seventy percent of respondents to a recent Nanos Research/Bloomberg News poll said they would be "happy" or "somewhat happy" if home values declined.
But Moffat doesn't think Canada has a housing bubble -- he predicts that while prices are and will be volatile, they'll continue rising because the country simply doesn't have enough homes.
Canada's federal government has attempted to dampen demand and encourage home construction. Earlier this year, the government passed a few new laws, including banning most foreigners from buying homes in the country for two years, taxing investors who buy and quickly flip homes for a profit or speculate, and taxing vacant homes. While the measures have slowed demand, Lander said, they're not enough to reduce prices.
Canada's unprecedented housing crisis could be a warning sign for the US, Eliza Relman, Business Insider, November 22, 2023
related thread: Rising rent costs force some Canadians to take on additional part-time jobs (posted in North America section)
Canadians are hoping home prices come down, but at the same time, if they do, it could trigger a financial disaster in the banks, and pull down the economy, throwing the country into a recession.
Canada's unprecedented housing crisis could be a warning sign for the US
Canada is experiencing an even more severe housing crisis than the US is. Home prices and household debt, due to massive mortgages, are sky-high. Some economists say affordability will worsen, while others say prices are on their way down.
The housing affordability crisis in the US is bad -- but America's neighbors to the north may have it worse.
The average home value in Canada has more than doubled since 2011. The country is also almost certainly heading towards a recession -- if it's not already in one -- and the housing market is partly to blame, economists say.
The drivers? Demand has raced ahead of supply. The country simply isn't building enough housing. City governments, which largely control housing policy, are "biased towards homeowners and not towards renters," Concordia University economist Mosche Lander argued, supporting policies that limit homebuilding and keep home values elevated. Investors pouring money into real estate speculation haven't helped. And record population growth from immigration has only added to demand.
This might sound familiar. The combination of a housing shortage, rising interest rates, and investor speculation have all contributed to a severe housing affordability crisis in the US, as well. "It's similar, but worse" in Canada, Mike Moffat, senior director at the Smart Prosperity Institute at the University of Ottawa.
After more than 20 years of low interest rates, which pushed housing prices up, Canada's central bank recently raised its benchmark interest rate to a 22-year high of 5% in an attempt to control inflation.
Rising mortgage rates are particularly painful in Canada because the standard home mortgage has to be refinanced after five years and fully paid back after 25 years. This is a key difference between the US and Canadian housing markets, since the standard US homeowner gets a 30-year fixed-rate mortgage, protecting them from rate increases for decades.
In part as a result of this, Canadians are deeply in debt. The country has the highest household debt as a share of GDP in the G7 -- and 75% of it is from mortgages.
"We have an imbalance -- we have household debt-to-income ratios that are above what the US was before the global financial crisis," said Tony Stillo, director of Canada economics at Oxford Economics. The result is "unprecedented unaffordability," he added.
Moffat is concerned that as affordability crisis continues and immigration rates remain high, Canadians will blame high prices on immigration and seek to limit migration. Recent polling has found that a growing share of Canadians feel this way, threatening the government's liberal stance on immigration policy. But there are other factors at play besides immigration, and Canada's housing crisis preceded the rise in immigration.
"It's starting to cause backlash here, you're starting to see anti-immigration sentiment," Moffat said.
With mortgage rates so high, home sales have declined recently. In October, home sales fell 5.6%. As a result, home prices overall have flattened somewhat. Stillo believes Canada's housing bubble has been slowly "deflating" for the last 18 months, despite an upswing in prices earlier this year.
The situation is so desperate that many Canadians are celebrating the drop in prices. Seventy percent of respondents to a recent Nanos Research/Bloomberg News poll said they would be "happy" or "somewhat happy" if home values declined.
But Moffat doesn't think Canada has a housing bubble -- he predicts that while prices are and will be volatile, they'll continue rising because the country simply doesn't have enough homes.
Canada's federal government has attempted to dampen demand and encourage home construction. Earlier this year, the government passed a few new laws, including banning most foreigners from buying homes in the country for two years, taxing investors who buy and quickly flip homes for a profit or speculate, and taxing vacant homes. While the measures have slowed demand, Lander said, they're not enough to reduce prices.
Canada's unprecedented housing crisis could be a warning sign for the US, Eliza Relman, Business Insider, November 22, 2023
related thread: Rising rent costs force some Canadians to take on additional part-time jobs (posted in North America section)
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