Weekend Reading: Unhealthy Housing Market Edition


Canada’s housing market continues to defy logic as prices have shot up more than 40% on average across the country. Last spring, then CMHC boss Evan Siddall predicted that home prices would fall between 9-18% due to the economic impact of the pandemic. So, what happened?

One reason is that high-income earners working from home bid up prices for detached houses in big cities, suburbs, and rural areas. Another reason is there simply isn’t enough inventory to keep up with demand – leading to bidding wars and bully offers.

The lack of supply is a problem when you consider that Canada’s population growth slowed to a crawl in 2020, with more people leaving Canada than moving here after Q1 2020. When immigration picks up again post-pandemic, we should see an even larger demand for housing.

Real estate analyst Logan Mohtashami called this an unhealthy housing market when he appeared on the Animal Spirits podcast this week. He was referring to the US market, but the problems are even more widespread in Canada.

“This is a very unhealthy housing market because inventories are too low. We might only be up just a little bit year-over-year in existing home sales and we have 13-18% price appreciation. That is not a healthy market under any circumstances. You should not be competing with 10 to 12 people for a house. That’s not how it’s supposed to be.”

Unhealthy Canada’s Housing Market

The entire episode is worth a listen. I agree with Logan when he says that the pandemic has pulled forward the demand that we might not have seen for 2-3 years. But he also said this is not a credit crisis like the previous US housing boom. It’s a legitimate demand, and supply needs to catch up before prices will cool off.

For a Canadian perspective, listen to the latest Mostly Money podcast with Preet Banerjee and real estate analyst Ben Rabidoux. He said, among other things, that:

  • Most of the people who lost their jobs weren’t in a position to buy in the first place
  • Those who tended to see their financial situations improve during the pandemic
  • Lower interest rates have further increased debt servicing ability

Rabidoux also explains how the mortgage deferrals that hundreds of thousands of Canadian homeowners. Took advantage of during the early stages of the pandemic did not lead to massive delinquencies at all. In fact, Rabidoux said most people who deferred mortgage payments did so out of an abundance of caution rather than extreme financial hardship.


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