This is Not a Bubble! – The Canadian Housing Market
Canada wasn’t hit as hard as the US during the housing crisis in 2008, yet people worry whether today’s hot market will lead to a similar crash. Economists don’t think so. they see the activity as evidence of a boom – not a path to a bust. Here are a few factors that make this market unique:
- Low Inventory
- Prices Match the Market
- Borrowers’ Credit Scores Are Up
- Strict Lending Rules
Historically, overbuilding has led to market busts.
The current risk of oversupply is low due to high buyer demand and increasing property values. In this market there are more sales than listings. Builders are playing catchup, and even when prices and demand level off, economists expect strict provincial zoning rules will help prevent over supply.
April 2021: 75.2%
January 2021: 90.6% Peak level
Long-term average: 54.5%
Prices Match the Market
While rapid price increases can indicate a bubble, things are different in Canada. Housing makes up a significant part of the economy. In Canada, higher home prices reflect the higher levels of real estate market activity.
Share of GPD, Housing:
United States 4.6%
Borrowers’ Credit Scores Are Up
Qualified buyers are always good news for a real estate market, and Canada has plenty.
87.7% of current borrowers and 86.6% of new borrowers have a 700+ credit score. Up from 83.8% and 83.6% in 2020, respectively.
Mortgage holder’s Average Credit Score = 765
Strict Lending Rules
In June 2021, the government strengthened stress test regulations. New qualifying rate for uninsured mortgages (less than 20% down): 5.25% or two percentage points above their contracted rate, whichever is higher. Previous rate was 4.79%.
In 2008, many people found themselves tied to mortgages they could no longer afford. The stricter stress test protects buyers from potential foreclosures. This is anticipated to help cool the current market.
Check out the infographic here:
Content provided from Buffini: SOURCES: 1. Daniel Tencer, “BMO Uncovers Simple Reason Canadian House Prices Now 46% Higher Than U.S.,”
Huffington Post, January 2021. 2. CREA, “National Statistics,” May 2021. 3. Ari Altstedter, Kevin Orland, “The housing boom
that never ends already wiped out all the short-sellers,” Bloomberg News, March 2021. 4. BMO Capital Markets 5. CMHC,
“Mortgage and Consumer Credit Trends: Q4 2021 Data,” April 2021. *Adjusted for purchasing power and exchange rates.