Just how big is Canada’s real estate bubble? Canadians, especially in the real estate industry, are already warning rate hikes are damaging the economy. While large price drops sound scary, no one had realized how scary large price gains had become. A typical home can drop the equivalent of a median household’s income, and only roll back to last December — wiping out just 3 months of gains.
If Canadian Home Prices Drop $91k, They’ll Only Wipe Out Q1 Gains
Canadian home prices would need to make a nearly six-digit drop to reverse just the gains made this year. The composite benchmark for a home across the country reached $887,100 in March, up $91,600 from December 2021. Not a mistake. That’s the increase over just the first 3-months of the year — an average of $30k/month, according to CREA.
A correction is a price drop of 10% or more, but less than 20% (which makes it a crash). Home prices need to fall 10.3% just to roll back the gains made in the first 3-months of 2022.
Housing Markets Can Fall Up To $128k & Only Roll Back To December
Canadian real estate markets can lose tens of thousands and only reverse a quarter’s worth of gains. Oakville-Milton ($128,200), Kitchener-Waterloo ($73,200), and Hamilton Burlington ($59,300) advanced the most in the first quarter of 2022. No one found it concerning when Oakville prices jumped $10k/week. But minor price drops are now ruffling feathers. Funny how that works.
This year, Canada’s Big 3 real estate markets made huge gains; they look modest beside the rest of the bubble. Toronto’s home prices could lose $51,900 from the March high and only have reversed Q1 2022. Vancouver home prices advanced less than half the amount ($25,000) of Toronto, being the modest city it is. Montreal ($12,300) looks almost normal-ish in contrast.
A Few Housing Markets Have Already Rolled Back To December 2021
Some Canadian real estate markets have already rolled back to prices at the end of 2021. Saint John (-$4,400), Bancroft (-$2,800), Fredericton (-$2,500), St Johns (-$700), PEI (-$500), and Saskatoon (-$400) are all below last December’s prices. Not by much, but credit conditions are tightening, not easing. This will provide pressure to the downside for home prices.
Only minor price drops have occurred, and the sob stories have already begun to make the rounds. Policymakers let Canadian real estate get so out of hand, significant drops in price aren’t enough to make cities affordable. This was true even before 2022 began, but the past few months have been absurd. Home equity can drop a whole year of income and only reverse 3-months of bubble economics.