Personal Finance

Will Canada’s housing bubble burst?

Home ownership is at the centre of many Canadians’ financial retirement plans. That’s especially true for baby boomers who are sitting snugly atop a nice wave of real estate inflation.

In fact, the average price of a detached home in Canada has doubled since 2000, and in September was sitting at $331,000. Of course that number pales when compared to Vancouver, where the average price for the same period was $679,000 and in Toronto it was a still-high but a more modest $427,000.

So a lot of people nearing retirement age are hoping the housing market will stay buoyant until they cash out, allowing them to downsize, pay off their debts and still have plenty of money left over.

A lot of American homeowners used to think that way. But from their peak in 2005, U.S. house prices have fallen almost 30 per cent, and they are still trending lower. Things are still so bad in the U.S. that the real estate default rate hit a record high in 2010, with more than three million households receiving foreclosure notices. And it could get even worse in 2011.  Read More…

Replies to this Post

  1. Wade says:

    Well said Maxwell B ! I have been searching for truth for a long time. The fact that each currency is equitable to the US dollar means the whole world is due for a crash. All countries currencies are measured in US $ because of the bear sterns act in the early 1940’s Haven’t you ever wondered why our dollar is way stronger than the US’s with all the commodities we own as a country? Look around the world and how everyone’s doing. Greece in a barter system. so many examples right now. PREPARE FOR CURRENCY CRASH my fellow canadians.

    From wikipedia :
    The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world’s major industrial states in the mid-20th century. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states.

    Preparing to rebuild the international economic system as World War II was still raging, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, United States, for the United Nations Monetary and Financial Conference. The delegates deliberated during 1–22 July 1944, and signed the Agreement on its final day.

    Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group. These organizations became operational in 1945 after a sufficient number of countries had ratified the agreement.

    The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar and the ability of the IMF to bridge temporary imbalances of payments.

    On 15 August 1971, the United States unilaterally terminated convertibility of the US$ to gold. This brought the Bretton Woods system to an end and saw the dollar become fiat currency.[1] This action, referred to as the Nixon shock, created the situation in which the United States dollar became a reserve currency used by many states. At the same time, many fixed currencies (such as GBP, for example), also became free floating.

    We are no longer accountable to gold and sooner or later we will be paying the piper.

  2. Sara Miller says:

    Housing prices in Ottawa’s outlying areas have softened considerably. We bought a home 2 years ago (2010) for $370,000.00. We put $20,000.00 on the mortgage to update it (foolish..yes). We tried to sell this past summer for $399,000.00. House has been on the market for 7 months. We’ve had one offer – $360,000.00 – ten thousand less than we paid 2 years ago minus the $20,000.00 in renos…..Looks like we’ll be here for a long long time as we are clearly way upside down on this pig.
    If you ask me…the bubble has already burst or is leaking badly at the very least…

  3. Marco F says:

    “Wow nearly $700,000 in Vancouver? That’s not even in Ontario…shame on them!”

    You clearly haven’t been to BC before. It’s much nicer than Ontario and blows away out standard of living. I lived there for two years. 

  4. Tom Napiotek says:

    There isn’t anything that is widely applicable to all of Canada, first of all. And, in those locations (Vancouver and Toronto) where things are heading south, the situation does not represent conditions of a bubble. There is merely an overvaluation in the market and the prices have to correct. Elsewhere in Canada, such as key locations throughout Ontario, Alberta and even spots throughout BC, are offering residential and investment buyers some serious value with exponential growth expected over coming years.

  5. NoOneOfConsequence says:

    Well…I succumbed to the housing crash hype, listed and sold our 900 square foot bungalow in Vancouver for 400,000.

    My family has ridiculed me, co-workers call me a fool. Everyone says that Canadian Real Estate NEVER goes down in value, only up, up, up!!

    In yet…my mother in law, who retired into a monster home in Shuswap has NOT been able to sell now for 6 months. Not a single person has come for a look. She originally refused to lower her 545,000 price tag. But 2 months ago relented and dropped it to $479K. 
    Still not a single potential buyer.

    Now she is 72…getting concerned and considering taking her home off the market for 6 months…then listing again at 420,000.

    There are now 22 homes for sale on her street.  All 3000 square feet plus, assessed at $500K plus.

    Care to estimate what’s going to happen to prices in the area?

  6. Justin Baker says:

    I was surprised to hear that home prices in Toronto have increased by about 85% over the past decade. I’m not sure if I should buy a place here. The prices seem to be unsustainable, so I’ve been waiting for 5 years for the bubble to burst… but sadly, it just hasn’t happened quite yet.

  7. Tripp says:

    The bubble is big and it will burst accordingly. There is no way this could be sustained by a lukewarm economy and record low mortgage rates.
    Another major issue than is what you get for that truckload of money. The quality standards for residential construction are not very high and usually problems appear within few years. Nails popping, cracked foundations, curly shingles, water infiltration etc. are way too common. According to CMHC, more than half of the houses in the country have a mold problem. These houses are not built to last, they are regarded as an investment and not a place to live in. The method is also full of flaws, around the world wood frame houses are usually considered temporary shelter. Many big cities ban the stick construction altogether because of the long list of problems they generate. 
    Surely, we do not know any better and still believe the newspaper and radio cr@p that tells us we have the best houses and the soundest bank system in the world. Like so many other things, for most of the Canadians that did not travel too much, this is credible. 
    Like any other bubble or crisis, there will be winners and losers. I am afraid most of us will be in the second category.

  8. Claire S, says:

    This is what you hear in Vancouver all the time. If you mention that the market in Vancouver may drop people get really aggressive telling you why it wont. This video makes me smile, typical of so many Vancouverites.

    My property value will never go down

  9. Jaxz says:

    I would agree with brents comment. Our housing costs have to drop as baby boomers retire to nursing homes or apartments, there will be an abbundance of houses that will not be able to sell for there so called market value. It has only one direction it can go and that is down …… way down.

  10. Brent says:

    Just a thought on renting, If you share rent, to me your are not wasting any money these days. My Rent is 550 shared so 1100 total and a lot of people pay that in taxes roughly, in a large city. So Why is it such a big deal to own your own home. I don’t have to continually upgrade my home to keep the value and fix and pay for yard keep and snow removal, I can contribute so much more to my retirement and live comfortably. I can take winter vacations and drive a nice car and don’t have to put any of it on credit. I Don’t understand why it is such a big deal that Canadians must put themselves in financial risk in order to own a home. We have seen the cycle again and a again, what goes up must come down. It is unfeasible that houses will continue to rise forever without wages. And they definitely have not. = one outcome.

  11. Jasper Dale says:

    Sasha, my opinion…the Canadian housing market hasn’t even STARTED to burst. Mark my words, we WILL see exactly the same thing that the US has, perhaps even worse given our current debt to income ratio. Those that didn’t buy and already owned topped up their mortgate because the banks let them. This is going to be VERY ugly and the worst thing is, guess who suffers? The Canadian tax payer, as CMHC mortgages are insured by none other then our Federal government. Canada is going to be screwed. My opinion, lets see how this plays out….but now might be a good time to buy a house stateside so you can be ready to move when their economy starts to really recover as ours slides further into the abyss.

  12. Shari says:

    Because we have stronger regulation the bubble will burst but not because of the nonsense the US went through but because it is the natural order of things.

  13. Wayne says:

    @bill_p, renting is only good if it is only a stop point to something more — buying a home. Otherwise is wasting money down the drain.

  14. bill_p says:

    I still rent. Is that good?

  15. Kody says:

    All things come to an end. I say sell..sell..sell!

  16. Kaleb Adress says:

    Without the real fix in the mix such as ridding the US blatant evil activity of credit default swaps, etc it is only a matter of time before we too experience the same pains.

  17. Hailey L says:

    Wow nearly $700,000 in Vancouver? That’s not even in Ontario…shame on them!

  18. Maxwell B. says:

    As the America’s go so does the rest of the world 🙁

  19. Arly Helfer says:

    The US’s situation was unique and although this article goes into depth to point out the stark differences to our nations we are well buffered and will not have a serious collapse any time soon.

  20. Sasha Bellier says:

    Maybe i’m mistaken but aren’t we STILL experiencing the burst?

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