A real bubble occurs when both you and your friend own something that's tanking.

A real bubble occurs when both you and your friend own something that's tanking.

The Canadian property market has experienced significant fluctuations over the past two decades, with a notable rise in real estate prices from 2002 to 2022. This period has been marked by a substantial increase in home and property prices, particularly in cities like Toronto and Vancouver. According to the Dallas Federal Reserve, Canadian real estate was deemed "exuberant" beginning in 2003 [1].

From 2003 to 2018, Canada witnessed an increase in home and property prices of up to 337% in some cities [2]. The Organization for Economic Co-operation and Development (OECD) warned in 2016 that Canada's financial stability was at risk due to elevated housing prices, investment, and household debt [3]. By 2018, home-owning costs had surpassed 1990 levels when Canada last experienced a housing bubble [4]. Bloomberg Economics ranked Canada as the second-largest housing bubble across the OECD in 2019 and 2021 [5][6]. Toronto topped the Swiss bank UBS' real estate bubble index in 2022, while Vancouver also scored among the 10 riskiest cities in the world [7].

Attempts to curb the housing market's growth were implemented in 2016-2017. Finance Canada introduced a stress test for insured mortgages, while British Columbia and Ontario implemented foreign buyer's taxes. These measures coincided with a slight dip in housing prices in 2017 [46], but prices soon rebounded. Despite these efforts, the Canadian Mortgage and Housing Corporation noted ongoing vulnerability in the housing market, citing overbuilding and rising private sector debt-to-GDP ratio [48][2].

The COVID-19 pandemic brought a brief slowdown in the housing market, particularly for condos in larger cities. However, prices rebounded rapidly, with detached home prices increasing in 95% of Toronto districts by June 2020 [59]. 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 [62]. The Bank of Canada indicated that it would hold firm on low interest rates until 2023 [69], citing concerns about the economic recovery.

In 2022, the Bank of Canada began hiking interest rates, signaling a potential shift in the market. Housing prices have soared, with Zoom towns experiencing significant growth at the expense of major urban centers. The pandemic has led to a situation where investment in the housing market now constitutes over 50% of all investment in the Canadian economy [73].

The future of the Canadian property market remains uncertain, with signs of both risk and resilience. While the housing market has shown remarkable resilience, the ongoing increase in housing prices and debt levels suggests that the market may be at risk of another bubble burst. The Bank of Canada's recent actions to cool the market may help stabilize prices, but the long-term impact remains to be seen.

References:
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