Canada’s Real Estate Bubble Is Approaching The Largest In History

Canada’s Real Estate Bubble Is Approaching The Largest In History

Canada’s real estate bubble has blown past the 90s bubble, and is going for the biggest of all time. National Bank (NBF) data shows affordability in Q3 2022 eroded to the worst level since the early 1980s. Just like the 80s bubble, they don’t expect this one to persist for much longer. Affordability is expected to improve next year as home prices continue to fall.


Canadian Housing Affordability Is The Worst Since 1981


Canadian housing affordability is now the worst in not one, but two generations. NBF estimates median households buying a home would need 67.3% of their income to carry a mortgage in Q3. It’s a big jump of 3.8 points from the previous quarter and 21.0 points higher than last year. Buying a home in Canada’s cities hasn’t been this hard since the 1981 inflation-real estate bubble.


Remember, that’s right across Canada—it gets worse in the more expensive cities. A median household would need to spend a lot more to carry a mortgage in Vancouver (102.1%), Victoria (100.5%), and Toronto (93.1%). Even Hamilton (68.1%) has reached the point where a typical family can no longer afford to buy. Can you name one thing Hamilton is famous for? Exactly.


Canadian Mortgage Affordability


The share of income a median household would need to spend servicing a mortgage on a typical home in each respective market.

Source: National Bank Financial; Better Dwelling.


Even markets considered “affordable” are beginning to look frothy these days. A much smaller share of income is needed to carry a mortgage in Edmonton (31.7%), Quebec (32%), and Winnipeg (33.9%). However, that’s close to the maximum leverage a lender will lend to people. It only looks affordable in contrast to Canada’s mega bubbles, which happen to top Global Bubble Indexes.


Canadians Need To Make Over $250,000 To Own In Toronto Or Vancouver


Okay, it’s impossible for a typical household to buy a home in most of Canada’s cities. How much does a household need to make to carry the mortgage on one? Nationally, buyers of a typical home in major cities require a qualifying income of $189,000/year to carry the mortgage in Q3. That’s around double the median income. It’s also so steep that most existing homeowners likely wouldn’t qualify for a mortgage on their home today. 


Once again, that’s across Canada—a lot more is needed to buy in the largest cities. The highest minimum incomes are in Vancouver ($279,000), Toronto ($254,000), and Victoria ($233,000). It’s even multiples of a median household’s income in Hamilton ($223,000). Even small “working class” cities with a population of fewer than 600,000 people are out of reach.


Canadian Househousing Affordability Hasn’t Been This Bad Since 1981


The minimum qualifying income for a mortgage on a typical home vs the median household income in each region.

Source: National Bank Financial; Better Dwelling.


The erosion of affordability is due to a combination of high prices and high rates. Low rates boosted investor demand for housing, sending prices soaring. Now that rates are climbing, we’re at that awkward transition phase. Home prices are falling, but not as fast as rates have been rising. NBF expects affordability to start improving by next year as prices continue to fall. They estimate we’re about halfway to the bottom.