January 26, 2021

Paul Rocha

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Canadian Real Estate Price Growth – A Different Theory

Sold sign outside a suburban Toronto home.

Canadian Real Estate Markets continues it's upward trend

Last Friday I posted a chart showing how absolutely astounding the Canadian Real Estate Market has really been. According to the US Federal Reserve,the Canadian Real Estate market grew 25 x faster than did it's US counterpart.

The exuberance Canadians have for their real estate has led to the sounding of alarm bells from both national and international finance powerhouses, such as CMHC and IMF. CMHC has been very vocal lately warning of real estate bubbles forming in various cities across Canada. Unless you've been living under a rock somewhere this is not new. Almost as prevalent as the soaring real estate market are the calls for it's immanent collapse. I must admit, I may have been heard once or twice questioning the short term viability of Canadian Real Estate.

Just as prevalent are the rationalizations justifying the price growth and predictions of continued price acceleration. Arguments ranging from Canada's immigration policy, foreign ownership, low interest rates, and GOC policies being the logs fuelling the market. As a whole I believe that each of these factors has contributed to where we are today.

This week however BMO suggested a new idea. An idea that is so simple that it might actually make some sense. What if the main reason that property values in Canada continue to increase is that, as Canadians we value real estate more than other countries, and as such we allocate more of our savings to purchasing real estate.

Could it be as straightforward and elementary as this? This argument could help explain the incredible robustness of this market during one of the worst economic downturns the world has ever experienced. Those working in industries little affected by the lock-downs have actually seen their disposable income rise during the pandemic. In essence people are saving more because the are spending less. If someone places more value on real estate than other investments and their disposable income increases it makes sense that they can spend more money on real estate.

It's an interesting theory. Personally I think that this idea might be the glue that connects the other more common explanations. Because we as a country place higher value on purchasing real estate, the historically low interest rates and current GOC policies make it that much more enticing to buy.e...

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