The Soaring Housing Market Prices In Canadian Real Estate

Over the past two decades, the housing market in Canada has increased by 375 percent across the nation, and the housing prices are still rising at a steady pace. In hot markets such as Toronto and Vancouver, home prices have surged by 450 to 490 percent.

Furthermore, the national average home price record in Canada was broken in January 2022, with the average home price being recorded at $748,439. This is a 20% increase from last year. Comparing this figure with December 2021, it was noted that the average house price was $713,542, which is a 5% increase from December 2021 to January 2022.

With regards to the provinces of Canada, the Prairie Provinces lagged behind the rest of the provinces in terms of home price growth. In Alberta, the average home price was recorded at $443,398 in January 2022, resulting in a 10% increase.

Calgary depicted an 8% annual increase, Manitoba increased by 11% along with similar year-over-year increase noted in Winnipeg as well. On the other hand, home prices in Edmonton achieved only a 4% increase. The lowest provincial year-over-year increase was recorded in Saskatchewan with only 7%.

The head of the North American Strategy & Economics at Macquarie Group, David Doyle, says that the perceived housing market frenzy in Canada is attributed to the low interest rates being offered by various financial institutions. This equates to cheap borrowing costs, lowering the burden on mortgage payments. Doyle also highlighted the de-synchronization of the Canadian housing prices with factors such as the income of the people and their ability to pay for high-priced homes over the coming years. Quoting Doyle, “Prices are totally disconnected from the fundamentals”. The conclusion that can be adopted from Doyle’s statement is linked with a prediction that the housing prices within Canada will only increase over the coming years.

Comparing the housing market prices with the income of the people, Doyle’s research team revealed that in the USA, although the prices have increased, the disposable income of the people have remained low. On the other hand, in Canada, the house prices have soared while disposable income has had a comparatively lower increase. One important fact to consider, when comparing the American and Canadian housing markets, is that in the USA people do not perceive housing as a safe asset.

Although the house prices are increasing at an exponential rate, the mortgage rates have also been increasing, albeit being at a more stable rate. CMHC has also updated their lending guidelines  as of July 2021. In the new guidelines, the CMHC removed the increased restrictions for mortgage insurance such as the requirements for credit score and the debt service ratios.

By making such changes, CMHC insurance became more accessible, easing the path for borrowers to qualify and ensure they receive their mortgages. Furthermore, on June 1, 2021, the mortgage stress test benchmark was also increased, making it more difficult for the general public to be able to qualify for a mortgage.